Where Have You Gone, Mr. Ross Perot? Our Nation Turns Its Lonely Eyes To You
So the Bush Administration is now predicting a $482 billion deficit for FY2009, or 3.5% of projected GDP. That’s about comparable in percentage terms to the deficit in the worst year of this Administration, and actually a little better (again, in percentage terms) than the worst years of the Reagan or the G. H. W. Bush Administrations. So it’s no big deal, right?
Except that the last time we ran massive budget deficits, the personal savings rate for American households was still in the high double-digits. The personal savings rate dropped dramatically from the mid-1990s – but that was at the same time that the government went into surplus, so the national savings rate (personal+business+government) was still positive. That number is now close to or below zero. Also, in the 1990s, when we grew our way out of the deficits of the Reagan and Bush Sr. Administrations, we did so through surprisingly rapid productivity growth. Early indications are that we are in a different era now – if there is another wave of rapid productivity growth coming, we haven’t seen it yet, and if it doesn’t come then we will not be able to easily to grow our way out of these problems.
The best-laid domestic schemes of mice and men (I leave it to the reader to assign “mouse” and “man” among the two leading candidates for President this year) are likely to gang a-gley in the next couple of years, much as President Clinton’s domestic agenda did in 1993-1994. It almost doesn’t matter what either candidate is proposing, at least if what one is looking for is a guide to what they will do once elected. The real question we should be asking is not what plans this or that candidate has for tax cuts or for new spending initiatives, but which candidate is going to better handle things when his budget director says, “I’m sorry, sir, we can’t afford any of that.”
Update: I don’t want to overstate things, by the way – I don’t think a green-eyeshade economics is any more useful than a green-eyeshade politics. But it is genuinely striking to me the degree to which neither candidate is talking about domestic policy in a way that seems to reflect the constraints of the actual world we find ourselves in. Obama’s economic proposals are almost entirely limited to redistributive plans that presume the economy as a whole is strong but the benefits have skewed unreasonably towards the top (in part because of larger economic forces, in part because of changes in regulation and bankruptcy law, and in part because of changes in the tax code and government subsidies). The latter part may be true but if the former is false much of his agenda needs to be rethought. And McCain’s economic proposals are a hodge-podge of contradictory impulses that I really don’t think are intended to be taken seriously as an economic plan – besides which, McCain would be negotiating with a Democratic Congress, so even if they were intended to be taken seriously by the voters, they won’t actually be enacted. My point is just: the budget situation is relatively serious. And yet it isn’t being discussed as such. That’s worrying.
I’d guess the main reason is that the interest payments on public debt are fairly low at the moment. Even as our debt has ballooned, our interest payments have stayed relatively constant at ~1.7% of GDP. Obviously, that’s still a hefty chunk of change, but it’s not that high even by pre-Reagan standards and it’s about 1/2 of what it was at the high-water mark of Bush 1’s presidency. How much debt we can afford is intimately tied to the interest rate on it, and ours is still quite affordable.
— Bo · Jul 28, 08:31 PM · #
For now. What happens when we have to refinance?
— Noah Millman · Jul 28, 09:15 PM · #
Well, the US is, as you’re no doubt aware, constantly refinancing. If you mean ‘What happens if interest rates spike?’ … Well, if that happens, that definitely would screw whoever is president. I’m just saying why it’s not considered an issue now.
I realize that as 2009 approaches Republicans are en masse going to rediscover deficit hawkery, but let’s keep it in perspective. Our deficit hasn’t tragic proven tragic in the last 7 years, and the deficit when the Iraq War winds down and the Bush tax cuts sunset will be even less tragic.
— Bo · Jul 28, 10:25 PM · #
For what it’s worth, I’m highly skeptical of McCain’s current posturing as as a deficit hawk, precisely because his tax and spending proposals are completely inconsistent with such posturing. But, yes, I expect Republicans will rediscover sound budgeting principles in the minority, and yes, that’s probably a bit much to take if you’re a Democrat. But, if one can dispense with concerns for justice in politics, the country does still need to know whether the Democrats, if they control both branches of government, will govern in a fiscally responsible manner. Just because the Bush Administration lowered the bar doesn’t mean I have to, or the country has to.
— Noah Millman · Jul 28, 10:46 PM · #
I think you’ve misunderstood me a bit. The answer to your question is: Of course Democrats won’t govern in a fiscally responsible manner unless they absolutely, positively have to. That is because they are politicians.
Unfortunately, while you’re newfound idealism about lowering the bar is nice, it has the problem of having no relation to how the world works. After all, you’ve surely noticed that Democrats in Congress have decided to be only slightly less murderous, slightly more fiscally responsible, slightly more constitutional then the Republicans. They realize they don’t need to beat your imaginary bar, only their opponents; that’s why they call campaigns ‘races’. Once you realize this, the obvious logical conclusion is that you have to be against lowering the bar when it’s being lowered, not complaining that it’s not being raised enough afterwards. That just won’t work.
— Bo · Jul 28, 11:56 PM · #