Earlier this week I said something that might have surprised some readers. The context had to do with orthodox Keynesian policy prescriptions. The elevator version of Keynesianism is this: run government deficits during recessions and run surpluses during boom times. If we ignore tax policy, this would mean government spending should increase during recessions and government spending should fall during booms.
I typically challenge Keynesians at this point to show me a time when they consistently said, “now is the time to run surpluses and reduce spending.” I doubt I will ever hear it. My original sense for why we’d never hear it was because Keynesians simply loved government. But I want to change that view. Some of the most thoughtful Keynesians I have read recently (such as Professor Fazzari) do not strike me as being mere cheerleaders for the state. They truly believe in a utilitarian view that sensible Keynesian management policies will make us better off.
What, then, makes me think otherwise. Two points, one practical and the other inspires the title of the post. First, I do not think Keynesian policy as advocates would want to see it is possible given the composition of government expenditures. Suppose tax collections are always constant (which is a bad assumption I know) at today’s approximate $2.2 trillion. During the current downturn, spending is $3.8 trillion – meaning the deficit is $1.6 trillion, or over 10% of the entire economy. Some Keynesians do not think this is large enough, but let’s just assume that it is. It seems natural to me at least that a $1.6 trillion surplus would be “large enough” during good times. Of course, no one has ever told me that a good time was a crisis requiring that much surplus accumulation, nor do I think serious Keynesians would advocate that large a surplus. Let’s assume that they would argue a $400 billion surplus is adequate during booms. What does this mean?
It means that government spending during good times would be lower by two trillion dollars. Now look at the following chart, which shows the composition of current federal expenditures:
How much of that chart do you think is truly discretionary? I’d argue that it would be generous to call even 10% of it, or less than $400 billion, discretionary. Just recall all the hand wringing about a $60 billion spending reduction for this last spending bill. So, even if we agreed on the Keynesian policy, it can never happen. Ever. Not in my lifetime, or in any other lifetime I will ever have the pleasure of living in. For example, a $2 trillion spending reduction would leave us with “only” $1.8 trillion to spend. The Defense Department plus Social Security together spend $1.76 trillion. Thanks for playing, try again next time.
What about power and loving government? For those who exercise power, it is not clear to me that spending lots of other people’s money is all that important. Power is not the same as spending other people’s money. I think the converse is not true, but think of what power really is. In my view power is the ability to control and direct the affairs of others. My wife has power over me simply by making me feel bad when I do stupid things. My church has power over me by convincing me that my love of liberty and the human spirit and the Enlightenment is going to land me in hell. Sure, my wife also exercises power over me because she controls our family purse strings, but she’d have it anyway if I did. So, for those who lust for political power, it does not rest solely in the actual taxation and spending – although those things surely enhance it. The power comes from the ability to direct the lives of the citizens you govern – and running surpluses during boom times does exactly this. Only those wielding political power can do such a thing, the rest of us cannot. And what is more, the ability to run surpluses during boom times implicitly gives you the awesome power to ramp up spending during slack times – probably more power than you’d have under conventional policy. This is not my way of advocating such a thing, but rather it is how I have come to get my mind around possible reasons for power-hungry progressives to want to accede to allowing spending to fall.
However, we never see such things happen. So is it because my view of power is wrong? Is it because of the practical limitations from above? Or something else?
An inherent problem with the theory of surplus spending in good times is that there is rarely, if ever, a time when there is anything approaching a consensus that yes, “we sure living in good times, let’s pay down some of that accumulated debt.” There are always too many people with real or imagined grievances who are able to spur politicians to spend with all the OPM they can lay their hands on. It is only with hindsight that we collectively reflect on “the good old days.”