Magically Delicious

by Eric Martin

Remember, Clive Crook is a conservative-leaning economist:

It is worth remembering where the blame for this neutering of fiscal policy lies: squarely with the Bush administration. At the start of this decade, the budget stood in surplus to the tune of 2.4 per cent of GDP. On unchanged policy, this was expected to grow to a surplus of 4.5 per cent of GDP by 2008. This year's actual deficit of 3 per cent of GDP therefore represents a worsening of more than 7 per cent of GDP, or roughly $1,000bn. Almost all of this deterioration is due to policy: to tax cuts, spending increases, and their associated debt-service costs.

That projected surplus was a priceless gift to the White House. It offered the Bush administration ample scope for outlays on homeland security and other unforeseen priorities, and moderate tax cuts as well, all within a budget balanced over the course of the business cycle. Instead, the administration knowingly opted for outrageous fiscal excess - adding insult to injury with its phony tax-cut sunset provisions, designed for no other purpose than to disguise the long-term fiscal implications. Eight years on, this startling record of fiscal irresponsibility has all but taken fiscal policy off the table as an available response to the slowdown.

The US economy had better have luck on its side. Luck is about all it has left.

While this might be true, Obama is awfully skinny, and popular too.  So you can understand the dilemma I'm facing in deciding which candidate to back come November.

(h/t Eric Alterman)

Comments

[morzer]

I believe that "skinny" is no longer politically correct. "Laterally challenged" is much more the euphemism du jour. Real men have Limbaugh love-handles or Cheney convexities. Oh, and surplus is no longer acceptable either. "Socialist wealth-sucking" is far more acceptable. Finally "deficit" is Commie code for "liberation of assets" or "wealth-creation".

Just helping you along *s*.

[Eric Martin]

Entirely edified...

[Gus]

Hmmm, I thought the deficit was all due to the Pelosi/Reid Congress. That's what I was told at Red State.

[cleek]

this Crook guy probably has a book to sell.

best to ignore him.

[lemuel pitkin]

Given the near-certainty of recession and steeply rising unemployment, it's really the responsibility of folks like Crook and Eric Martin to explain why they think fiscal policy should be *more contractionary* than it currently is. Many would tell you that the federal deficit ought to be larger, not smaller, right now.

(*How* the money was spent is another story, of course. But that's not what Crook is talking about.)

[lemuel pitkin]

Sorry, corrected comment:

Given the near-certainty of recession and steeply rising unemployment, it's really the responsibility of folks like Crook and Eric Martin to explain why they think fiscal policy should be *more contractionary* than it currently is. Many respectable Keynesian economists would tell you that the federal deficit ought to be larger, not smaller, right now.

(*How* the money was spent is another story, of course. But that's not what Crook is talking about.)

[Eric Martin]

LP:

If we reduced spending on the Iraq war (eventually eliminating such spending altogether), let most of Bush's tax cuts for the upper-upper echelons expire (estate tax cut, ie) while forestalling McCain's plan to lower the corporate rate from 35% to 25% and plugging in the hedge fund manager loophole, we could do a lot to eas the fiscal burden without necessarily embracing a "contractionary" agenda.

I'm comfortable embracing a realigning of spending priorities and tax benefits as the primary goal, without going whole hog into contractionary policies.

As for the argument that the deficit ought to be larger, that all depends on what fiscal policies are embraced to get it there.

[Bernard Yomtov]

Lemuel Pitkin,

I think you miss Crook's point. He is saying that the US cannot afford much fiscal stimulus owing to the deficits we have run up during the Bush years. If, by contrast, we had been more prudent we would now have the ability to provide a large stimulus.

Bush wasted a lot of the fiscal ammunition you think we should be firing.

[Adam]

If, by contrast, we had been more prudent we would now have the ability to provide a large stimulus.

Or we wouldn't need to provide it in the first place. As LM suggests (obliquely), much of the deficit spending we did over the last eight years was decidedly non-Keynesian -- e.g., spent on wars overseas, or handed out like candy to people with lower marginal spending rates.

And -- though this isn't technically a matter of stimulus policy -- the lack of "prudent" internal controls and oversight in the financial sector didn't exactly help, either.

[Mumble mumble]

Borrow now while the dollar still has value, pay it back when they're not worth anything. If you can get inflation to go faster than interest rates, you win!

[Carleton Wu]

(*How* the money was spent is another story, of course. But that's not what Crook is talking about.)

I havent read the whole article yet, but the quoted section does seem to be completely retrospective. ie how did we get into the hole? Crook doesn't recommend any policies (again, in the quoted section).
Eric certainly didn't advocate any particular policy positions in the post, so maybe your categorization of his policy preferences is based on something else he's written...
or are you deducing his policy positions from his apparent support of criticisms of Bush-era fiscal decisions? Im just not sure.

[OCSteve]

a conservative-leaning economist

Not sure why you seem surprised at that. Spending and deficit are areas where many conservatives disagreed with Bush, even early on.

So you can understand the dilemma I'm facing in deciding which candidate to back come November.

If you are concerned about this stuff – yes I do understand. McCain doesn’t know much about it by admission, and Obama has stated that deficit reduction is not a priority with him.

Buckle up!

[ThatLeftTurnInABQ]

Bush wasted a lot of the fiscal ammunition you think we should be firing.

It isn't just Bush. Courtesy of Alan and Ben the Fed is running out of bullets too. ZIRP doesn't have the zing it used to have.

Running out of fiscal policy options at the same time we reach the end of our rope w/ regard to monetary policy? Ouch - that is Not Good.

Remind me again why Obama wants to be President?

[gwangung]

It isn't just Bush. Courtesy of Alan and Ben the Fed is running out of bullets too. ZIRP doesn't have the zing it used to have.

Um. Stagnation a la Japan, if we're lucky...

[liberal japonicus]

Stagnation a la Japan, if we're lucky...

A necessary ingredient for that would be that the US would be willing to accept that they aren't No. 1 and happily settle for being in the top 5. Ain't gonna happen.

[ThatLeftTurnInABQ]

Um. Stagnation a la Japan, if we're lucky...

Agreed.

The repeated extensions and expansions of various Fed instruments (TAF, TSLF), and possible* extension of Fed backing to backstop the FDIC in dealing with failed banks that I've been reading about sound to me like an imposition of mark-to-model rules in disguise.

At the same time, we may continue to experience commodity price inflation if peak oil is arriving, so we could get the worst of 1990s Japanese stagnation and 1970s USA stagflation combined together.

*speculative interpretation, YMMV

[ThatLeftTurnInABQ]

A necessary ingredient for that would be that the US would be willing to accept that they aren't No. 1

Sometimes not accepting simply isn't one of the options on the table. I don't think Great Britain had much choice in the matter in the early 20th Cen. when they had to deal with the consequences of flipping over from being the worlds #1 creditor to #1 debtor nation, we may not have much choice now.

What are we going to do, go "Dr. Evil" and threaten the world with nukes if they don't pay us ransom* money?

*O N E - M I L L I O N - D O L L A R S [bwahahahaaa!]

[liberal japonicus]

Sorry, I should make my comment more clear. The US is not going to have the same situation as Japan, because of desire to say 'We're No. 1', and accepting Japanese style stagnation requires a realization that you are not the center of the world. When anyone points to measures that will require Americans to be less ambitious, those who oppose such measures will claim that the problem is external to the US.

[Bernard Yomtov]

Not sure why you seem surprised at that. Spending and deficit are areas where many conservatives disagreed with Bush, even early on.

Steve,

Spending maybe. Deficit no.

Conservatives supported the tax cuts, even in the face of the Iraq War. That is not the behavior of people concerned about deficits.

[Eric Martin]

Not sure why you seem surprised at that. Spending and deficit are areas where many conservatives disagreed with Bush, even early on.

Just none of the conservative lawmakers that voted in lock-step on every budget proposed by Bush. There were a few meek noises of protest on the fringes, but nothing resembling a real intra-party opposition.

Ditto the commentariat/punditocracy.

McCain doesn’t know much about it by admission, and Obama has stated that deficit reduction is not a priority with him.

True about Obama, but at least he'll break the budget on useful things like infrastructure and health care. Rather than, you know, the catastrophe in Iraq and tax cuts that overwhelmingly favor the wealthiest Americans. The ones that really need a break these days. It's been a rough 8 years.

[Jeff]

Obama has stated that deficit reduction is not a priority with him.

In line with Eric's last, I agree with Obama. What with Iraq, Iran, torture, illegal detention of innocent men, looming recession, etc, etc, I think having defict reduction as a high priority is not a real good idea.

[John Spragge]

Unfortunately, decades of ideology have made patriotism an ingredient of politics, rather than a motive. In the past, patriotism might have meant looking for the policies that best served your country; in the current political system, it means wearing the right pin on your lapel. And because more and more people see politics as an element of their identity, rather than a search for the best people to run the country, and the best courses of action to pursue, too many people convince themselves that the facts simply don't matter; that policies which have manifestly failed have in fact succeeded brilliantly, and that the "future" will vindicate even the most obvious and monstrous errors.

[John Spragge]

Lemuel:

I think that at this point it doesn't make sense to treat expanding the deficit as a long term option. At some point, the creditors of the United States will simply cut up your credit cards. Expanding the deficit without extreme caution raises the possibility this may happen at a particularly inconvenient time for you.

[russell]

*O N E - M I L L I O N - D O L L A R S [bwahahahaaa!]

That's one million dollars EACH, pal!

IMO life would proceed so much more smoothly if Americans could wrap their heads around the idea that they aren't, and don't really need to be, #1 in any and everything they do.

What really, really concerns me is how they will respond if the reality that they are not #1 is imposed on them against their will.

"Fascism is made by disappointed people". Ernest Hemingway, who had met a fascist or two.

Buckle up indeed.

Thanks -

[bobbyp]

"Not sure why you seem surprised at that. Spending and deficit are areas where many conservatives disagreed with Bush, even early on."

Sorry to pile on, OC, but the above is so patently untrue as to beggar belief...unless of course by "many" you mean a handful.

[bobbyp]

Assuming a growing economy, we can afford the debt. What we cannot afford is for the debt to grow faster than the economy. George Bush with his fiscal madness, has put up in this position.

In this respect, Eric is correct above @ 4:37. I also fear that russell is, as is his wont, correct also.

Imagine Weimar with money.

[Hartmut]

Weimar had lots of money. People had to use wheelbarrows to move it around [/sarcasm].

[rea]

Obama has stated that deficit reduction is not a priority with him.

Look back over the last 28 years, and tell me why on earth should a rational Democratic politician make deficit reduction a priority?

Spending and deficit are areas where many conservatives disagreed with Bush, even early on.

Again, look back over the last 28 years, and identify one conservative politician (other than Bill Clinton, who you probably don't think counts) who has done something real to balance the budget?

Since the election of Reagan, conservatives have been to fiscal sanity what Cato the Censor was to Carthage.

[John]

"What are we going to do, go "Dr. Evil" and threaten the world with nukes if they don't pay us ransom* money?"

And thus it came to pass that in early August of 2008, the McCain found its economic policy.