Robert Reich has recently reiterated his opposition to Clinton/Rubin style deficit reduction. Reich's article refuels the firestorm started when Paul Krugman wrote in the New York Times last December that Democrats should ignore budget deficits and instead devote their energies to spending on social programs and physical infrastructure improvements.
Following Krugman, the issue of whether the Democratic party should focus on fiscal responsibility vs. implementing badly-needed social programs has been presented as a dilemma: which one should the democrats favor? which one should the democrats ignore?
In this diary I intend to argue that this is a false dilemma: not only is there room for a compromise, but the compromise solution I posit below -- a 1 for 1 ratio of deficit reduction to increased social spending -- not only achieves Democratic goals, but actually should serve to paralyse any future Republican attempt to repeat Bush's policies of "borrow and squander."
Robert Reich's recent blog post entitled, "Democrats and the Deficit" reiterates his argument that:
[Bill Clinton] had promised during his campaign to "put people first" by reducing America’s two deficits – the yawning budget deficit, and the growing deficit of public investment in the nation’s schools, health care, infrastructure, and environment. ... But the ... budget deficit was so much larger than expected ..., Clinton ...[had] to put the investment deficit on hold....
In the late 1990s, when the budget deficit turned into a fat budget surplus, Clinton ignored his original investment agenda. ....
Thus did Clinton and Gore tee up a $5 trillion surplus for George Bush to give away mostly to America’s very wealthy – without the nation ever considering it might be used to finance what Clinton and Gore were elected to do in 1992. While Republicans continued to spout the nonsense of supply-side economics, Democrats became the official party of fiscal austerity. The choice became either trickle-down economics or Calvin Coolidge economics.
Fast forward.... There’s less money for job training, and it’s harder for families of modest means to afford college for their kids. Millions more Americans lack health insurance than in the early 1990s. ....
In so doing, Reich consciously restated the position enunciated last December in a New York TImes article by Paul Krugman, Democrats and the Deficit which posited:
[T]he lesson of the last six years is that the Democrats shouldn't spend political capital trying to bring the deficit down. They should refrain from actions that make the deficit worse. But given a choice between cutting the deficit and spending more on good things like health care reform, they should choose the spending....
But the realities of American politics ensured that [Clinton's budget heroics] was all for naught. The second President Bush quickly squandered the surplus on tax cuts that heavily favored the wealthy, then plunged the budget deep into deficit by cutting taxes on dividends and capital gains even as he took the country into a disastrous war. And you can even argue that Mr. Rubin's surplus was a bad thing, because it greased the rails for Mr. Bush's irresponsibility.
The answer, I now think, is to spend the money -- while taking great care to ensure that it is spent well, not squandered -- and let the deficit be. By spending money well, Democrats can both improve Americans' lives and, more broadly, offer a demonstration of the benefits of good government.
There were a number of dissents to Krugman's piece, for example by Cactus of Angry Bear, who said:
Once you start the policy of running these deficits forever, regardless of your reason for doing so, you have to sell it. The sales pitch is basically that running big deficits is not a bad thing because you’re spending it in ways that produce larger returns than they cost. But if the deficit is large enough, and the government is spending on enough things, that is unlikely to be true – there are decreasing returns to everything, including, obviously, government spending.
and also by our own bonddad, whose plea that fiscal responsibility was desparately needed itself generated some intense opposition, for example in this response.
This is a false dilemma. We don't have to choose between reducing budget deficits and spending on social programs. We can and should do both. Krugman wants us to keep running yearly budget deficits of ~3% just as Reagan, Bush 1, and now Bush 2 have done. Congress has pledged itself, as it did during the latter Bush 1 and Clinton years, to "pay-go", meaning every new dollar spent on a social program must be matched by a budget cut somewhere else. But there is room for compromise.
I propose that Democrats in Congress and the next Democratic president adopt a "1 for 1" approach, namely:
for every dollar saved on deficit reduction, one new dollar must be allocated to a needed social program.
Similarly,
for every new dollar allocated to a social program, one dollar must be saved on deficit reduction.
Thus, for example, if/when Bush's tax cuts expire in 2010, there will be approximately $300 billion in additional revenues available to the Federal government. A perfectly viable compromise is to allocate $150 billion of that to deficit reduction, and the other $150 billion to, for example, the college affordability and healthcare programs Reich mentions in his piece.
Similarly, as I advocated in a diary entitled, Dealing with Globalization: Can a bold new approach work?, if Congress were
to levy a tax on corporations specifically designed to capture some of the profit they make from offshoring jobs and factories, and specifically distribute it first of all to those who can be identified as job-losers due to globablization, and secondly to all wage-and-salary-earning taxpayers as, for example, a $1000 tax credit each year
for every dollar so distributed to the "losers" caused by free trade agreements, an addition dollar could be applied to deficit reduction.
Or how about an increase in the Inheritance tax on estates in excess of $50 million, and allocating 1/2 of the proceeds to deficit reduction, and 1/2 on educational and health care programs specifically aimed at children?
Not only is this an effective compromise, it sends the following message to Republicans who would borrow and squander: We're upping the ante: for every $1 you squander on giveaways to the wealthy, we're going to take $2 back -- $1 to erase your deficit, and an additional $1 taken from programs favoring you (like federally funded disaster insurance on megamillion dollar seashore estates) and redirected to programs helping the lower middle class, working blue collar class, and the poor.
IN CONCLUSION, by hammering home 2 points:
- (1) the more you "borrow and squander" now, the more social spending we'll force you to fund in the future; and
- (2) we are never, ever going to sacrifice winning social programs like Social Security
not only do we escape the dilemma they have designed for us, but we lock them even moreso in that selfsame dilemma.
Humbly submitted for your consideration.