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Leftist commentators, particularly Paul Krugman, construct enormous strawmen in regards to the issue of the federal deficit. Let’s be clear as to what the basic issue is. Krugman and his congregation argue that deficits are not that big a deal, and when they say deficits, they mean an annual excess of government spending over government revenues. That may or may not be true, and I am not here to argue it either way at this point. The mainstream argument has been between so-called “deficit-hawks” (those who believe the deficit should be smaller or zero) and “deficit-doves” (those who take a more Krugmanesque position). Believe it or not, I tend to fall closer to the Krugman line in terms of the mechanics of the whole thing, but from a moral or ethical standpoint I do not support deficits in any way.

What has ended up happening in the debate, per usual, is that group association is used to dismiss an entire class of concerned folks. In this case, there are two groups of people who could nominally be concerned about the issue of government spending. First is the pure deficit hawks, the folks who care only about the net difference between tax receipts and spending. Second, would be what I call the spending hawks, myself among them, who are concerned with the level of government spending, regardless of whether that spending is in excess or less than the government’s revenues. These are not the same people.

As a spending hawk, I am concerned that the government is taking on far too many activities than it can competently take on, so that the more it does, the lower quality would be the services provided at the margin (just as with any other task). As a spending hawk, I am concerned that the government is taking up too large a share of the economy — creating an environment of uncertainty and also serving to crowd out the much more productive and important private sector investment that is the source of productivity growth and hence our continued prosperity. As a spending hawk, I am concerned with ever-enlarging constituency of individuals, corporations and organizations that have come to depend on the government to take on roles it was never designed to do, or could conceivably do well. As a spending hawk, I am concerned that we have created and are continuing to create a culture of dependence which is crowding out at the margins a culture of innovation and entrepreneurship. As a spending hawk, I am concerned that we are expanding the number and share of built in interest groups and have made the problems of a rent-seeking society far worse than anyone could have imagined. As a spending hawk, I am concerned that we have created groups of insiders and outsiders or haves and have-nots as it relates to governments that threatens to tear the fabric of civil society. As a spending hawk, I am concerned that the federal government is infringing on activities that ought to be the domain of the states and thus reduce the amount of real federalism that this country was effectively built on. As a spending hawk, I am concerned that people will become accustomed to the easy to point to ribbon cutting projects of governments and less sensitive to the things that they do not see. And much more.

But notice what is missing from my concerns above. Nowhere did I say that I am much concerned that the government spends more than it takes in from tax revenues. That is of secondary, if any, importance. Consider the very simple following thought experiment. If you think Paul Krugman would not take the following deal, then you can safely agree that the “deficit hawk” trashing by the left is nothing but a gigantic straw man.

Paul feels the need to run larger deficits in order to improve the economy at this time. I say fine, let’s make a deal. If the current $1.3 trillion deficit is not large enough, let’s increase it to $2 trillion. And the way we get there is to eliminate every single dollar of federal taxation and at the same time cut federal spending in half from $4 trillion down to $2 trillion. I would sign up for that, would Paul?

You know the answer of course. And that answer should tell you everything you need to know about whether we are getting good objective economic analysis, or whether the lefty congregation is about anything other than continued accretion of state power.

Now, think of a simple objection to my proposal. If the government raises no taxes, how can it possibly pay off the debt it raises to finance its annual budget? I won’t answer that. Instead, I will pose an additional question that you can use to answer it. Instead of my scenario where spending is $2 trillion and revenues are zero, take us to something like today, where we imagine a $2 trillion deficit (i.e. the same size as under my thought experiment) but that this time, government spending is $5 trillion per year while government revenues are $3 trillion per year. Ask yourself, how can the government possibly pay off the accrued debt from this kind of activity. The answer in either case is identical – tax receipts have to grow in the future in order to do that. Would investors ever lend to the US without an expectation of ever being paid? Would they be happy to think that the only way they would get paid in full is by the Feds undertaking another bond issue? Would such a ponzi game ever run out on a planet of 7 billion people?

I’ve made this point elsewhere and been accused of being “simplistic” … what is the content of such an objection, what is too simple? The logic? So, whenever I hear about the deficit either being a big deal or not, I demand to know exactly what you mean by that, and I demand to know what sorts of numbers you are willing and interested in living with. You saw mine above – a $2 trillion deficit with zero tax revenues. What about you?

9 Responses to “The Deficit Strawman is Toast”

  1. Dan says:

    Two small comments, even though this post merits many.

    I have issue with your last paragraph, where you’re prepared to spew numbers at anyone who cares to share an opinion with you about the deficit. You’ve also expressed this sentiment before when you talked about more spending for public education. Why do we to be so familiar with precise sums when pertinent information so often get lost in aggregation? Here’s an example. Suppose I’m driving down a road riddled with potholes (a not uncommon problem). Ask me “Do you think there should be more spending on public infrastructure?” and I’d surely reply “Yes.” Will you then rush at me saying, “You don’t know how much we spend on infrastructure to the closest degree of magnitude. You have no authority for making that statement.”? The important information is not the sum we spend on infrastructure, but whether roads are good. They’re either in adequate condition or they’re not. Public high school is a road that many of us traversed through, and we don’t need sums to tell us if it’s in good shape. The real strawman might be this insistence on numbers.

    I also reject the idea many “rightist commentators” hold that big deficits will encourage people to save more in anticipation of higher tax bills. People have been spending like crazy in the last few years, without any regard to retirement, healthcare or the general need of thrift. Will the vague notion of further tax increases way far in the horizon really be the galvanizer for thrift? Probably not. Will entrepreneurs be less willing to start business because of the deficit, or will employers be slightly less willing to hire, either of which will reduce jobs? I doubt it.

    This is a great post. I just wanted to raise two points.

  2. Harry says:

    Right on, Wintercow!

    I am not sure whom Dan refers to as Rightist Commentators who think that people will save more if the deficit widens. None I know of.

    I assume he uses “rightist” as an ad hominem term of derision.

    Your distinguishing between deficit hawks and spending hawks is instructive.

  3. Harry says:

    Maybe it’s David Brooks, Krugman’s colleague at the Times.

  4. Dan says:

    Harry,

    Try a few of the ones listed here, the Club Wagner. http://economix.blogs.nytimes.com/2009/07/07/club-wagner/

    It’s a nice compilation of a few right wingers, including a former Reagan adviser, who say that taxes will rise “sometime.”

  5. Michael says:

    I’m not sure I’d take either side because from my brief thoughts on it, both sides would fail if you take the argument to the absurd. So like a good economist, I’ll say “it depends.”

    And Dan, I’m sure wintercow will respond, but my quick take is that you’re setting up a false choice. It’s not that the people who oppose more spending are for bad roads and bad high schools, but merely question whether the government has the competentency to make good roads and schools, regardless of the budget numbers. So it’s an institutional question.

  6. Harry says:

    Wintercow hates food fights, so I will try to be careful here not to be Blutarsky.

    We classical liberals cannot take responsibility for bad arguments of others, whatever their imagined or real philosophical pedigree.

    If we are prosperous, we can afford more than we can if we are not.
    Paul Krugman believes that if the government spends another trillion or so, allocating our money toward projects that the wise men deem, prosperity, or at least more just regime will result.

    Many of us are concerned about such policy and economic theory. Surely government spending at all levels has grown rapidly, taking an ever larger share of income. Wintercow argues that this problem is greater than the problem of deficit spending, an issue the spenders use as an excuse to raise tax rates and impose big new taxes — a value-added tax and a carbon tax being on the table today to pay for all this spending.

    If there are potholes in the road, and if we have the wherewithal to fix them, they should be repaired. However, I think of the driveway around my barn, and of the years I postponed fixing it because there were other bills to pay. Would government be so frugal; and sometimes it is.

    Now, suppose you had a good road, and someone said that taking a jackhammer to dig a pothole and then repairing it with tax money would stimulate aggregate demand, because the backhoe operator, the jackhammer guy, the asphalt contractor, and the other four or five guys watching, plus the supervisor, his manager, the people at HUD, PennDot, and who else took the net cash out of their paycheck and spent it for organic produce, how much would the Keynseans’ multiplier effect be with all of that friction? Or, better yet, would you spend your own money to have someone dig a hole and fill it up?

    I know this borders on a straw man argument in itself, but it rests on a truism that you can’t get something for nothing.

    My recommendation is that everybody read Bastiat’s essay, “A Negative Railroad” which can be found on this very site.

  7. Harry says:

    I hate to throw rain in someone’s parade, and, mindful of wintercow’s admonition not to start food fights, but I went to Dan’s link, and found an attempt at satire.

    Dan, I am happy you have found this site, and if you take full advantage of wintercow’s efforts to promote inquiry into the way the world works, you will be rewarded.

  8. Harry says:

    Sorry…now that I am at a real computer, delete the word “but” from the last post, and the cliche is rain on, not rain in.

    Wintercow wants to rein in Paul Krugman’s stallion of rampant spending.

  9. […] it. And don’t we just love this part brother: “and doesn’t add one dime to the deficit.” I don’t care about the deficit, I care about spending.  Here’s a fun idea. Let’s form a gang and incorporate (that […]

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