Balanced Budgets

Ezra Klein complains about budget balancing even more frequently than I complain about Obama. His response to the part in the State of the Union address about budget balancing is,

I’m a bit more concerned about Bush’s promise to “submit a budget that eliminates the Federal deficit within the next 5 years.” That’s a savvy move that will be hard, politically, to reject. If Democrats accept it, however, their freedom for new spending and affirmative policies will be near nonexistent. The punditocracy does love balanced budgets, and I somehow doubt we’ll hear much about Bush’s suspiciously recent discovery of the deficit hawk within.

Let’s leave aside the complaints about the media, which are just not true. Balanced budgets aren’t some pundit invention that ought to be ignored. They’re the basis of responsible government. A lot of American liberals are now running away from their six-year attack on Bush for running deficits, because now it’s they that have to rein in spending.

There’s one good economic argument for deficit spending, due to Keynes: deficit spending can stimulate the economy. That argument is a very strong one, when the economy is doing as spectacularly badly as it did in the entire world in 1932.

Getting out of a depression requires sustained deficit spending, as Roosevelt learned when he tried balancing the budget in 1938 and triggered a second depression. Staying out of one doesn’t, as Clinton learned when he balanced the budget for several years in a row in the late 1990s.

Paleo-Keynesianism is a good way of justifying wasteful spending, but economists have largely moved on. When debating a labor liberal who complained that he cared too much about sound economics, Paul Krugman explained how neo-Keynesian economists preferred stimulating the economy with monetary policy nowadays. It doesn’t work in Great Depressions, but if balanced budgets caused recessions, Canada’s economy would be a basket case.

The reason politicians in the US tend to run deficits isn’t because it’s economically sound, but because it’s popular. Saying “I’ve balanced the budget” is a vote winner, but doesn’t recover the vote loss from raising taxes and cutting spending. More importantly, it requires the politician to avoid excessively spending money on pork barrel projects.

The progressive agenda that Ezra alludes to doesn’t require spending money like sailors on leave. All it requires is spending money wisely. Feingold’s managed to combine strict fiscal discipline with respectable levels of social spending. He hasn’t managed to get his budget proposals enacted into law, but that’s the fault of the other 534 members of Congress.

Any politician who can’t sell tax increases for a health care plan that will ultimately save the economy a couple hundred billion dollars a year is too incompetent to keep his job. Excluding that, the US budget can be balanced entirely out of eliminating the FICA cap ($130 billion), withdrawing from Iraq ($90), and slashing farm aid and export subsidies (about $100, I think).

Since determining whether a policy is effective is hard, people tend to use costs as a proxy. That’s what causes the left to prefer a welfare program that costs $350 billion a year to one that achieves the same results for $100. That logic goes, “Balancing the budget is hard, and we might fail at it; therefore, it’s a bad idea.” A more prudent logic would instead conclude that it’s imperative that the people in charge of the budget be competent and creative enough to succeed.

6 Responses to Balanced Budgets

  1. jeremiasx says:

    Perhaps a better solution would be to do away with the entity that CREATES the National Debt…the Federal Reserve…and take back control of our own monetary policy and currency issue.

  2. Perhaps a better solution would be to do away with the entity that CREATES the National Debt…the Federal Reserve…and take back control of our own monetary policy and currency issue.

    This is vague. Are you talking about the gold standard?

  3. Alon Levy says:

    The US had a national debt from its inception, long before there was a Federal Reserve.

  4. SLC says:

    As I have pointed out on several threads on several blogs, the much maligned Bill Clinton bequethed a budger surplus to the current incombent.

  5. Johan Richter says:

    You apparently don’t accept the standard explanation that the ’38 depression was due to the tightening of reserve requirements by the Fed. May I ask why?

  6. Alon Levy says:

    Because it was also exactly when Roosevelt tried to balance the budget, after engaging in massive deficit spending for a few years.

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