20 Dec 2008

Brad DeLong: Budgets Deficits Are Awful Unless They’re Obama’s

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Readers know that lately I’ve come to doubt the evenhandedness of Brad DeLong. (This makes it difficult for him to “grasp reality with both hands,” the professed goal of his blog.) My suspicions were further aroused when I saw him make this statement at TPMCafe (HT2 Arnold Kling):

What is going to be the new leading sector? What is going to allow us to maintain full employment without running huge long-term budget deficits that will, eventually, sap our rate of economic growth somewhat?

Now that raised some red flags for me. Catch the two qualifiers that DeLong uses, to make sure the reader doesn’t get the wrong idea and think that federal budget deficits have a downside: he says “eventually” and then even has to throw in “somewhat”!! And there’s no doubt either about the nature of the beast here. He’s explicitly talking about “HUGE LONG-TERM budget deficits” (my emphasis of course).

To check my suspicions, I decided to do a Google search of “bush deficit” at DeLong’s blog. Go ahead and click on some of the results. When the huge deficits were George Bush’s actual, or John McCain’s hypothetical, then DeLong was quite severe in his criticism. This post from from just last August is the best example I found:

It says more about me than I should probably admit, but back in 2000 I found the prospect of paying off the national debt to be very exciting.

To me, the pledge to do that, which Bill Clinton made towards the end of his presidency and George W. Bush made as his years in the White House were just beginning, was absolutely thrilling. Because of the lower annual interest payments that would result, no other change then being seriously talked about had the potential to alter the long-term federal budget outlook as positively and permanently.

That’s why I found the mid-session review of the budget released yesterday to be so depressing. It was the official notice that the pledge, and all the good things that would come from it, would not be fullfilled. It was also time to admit that the budget politics, economics, and limits of the past decade would continue…and continue…and continue.

That’s just not a happy occasion for anyone but those of us who blog, write, and talk about the budget. Business will be booming.

None of this was a surpise, of course. The prospects for paying down the national debt firmly ended back in the first year of the Bush administration. And the close to $490 billion deficit that OMB projected for 2009 has long been assumed or leaked.

Nevertheless, the release of the midsession review on July 28, 2008 should be noted as the official date when the dream of a very different budget debate and fiscal policy opportunities died.

I’ll have more about the following shortly. But other observations:

From a budget, deficit, debt, interest rate, and fiscal policy perspective, the Bush administration is leaving the country so much worse off than it found it that it will likely hamstring the next president and Congress in ways that aren’t yet fully understood.

Based on what we now know for sure about next year’s budget, none of the presidential candidates’ promises should be taken seriously. Unless they, the country, and those lending us money are willing to tolerate much higher nominal deficits and a larger debt than has so far been imaginable, the next president’s options will be severely limited.

Hmm that tone seems a heck of a lot different from the more recent statement quoted in the very beginning of my post. And to repeat, you can’t get DeLong out of this by saying, “C’mon, right now we’re in a massive recession that requires deficit pump priming.” First of all, we were in a recession back in August, though the NBER didn’t know it. Second, to repeat myself, DeLong was referring to LONG-TERM budget deficits and what they would EVENTUALLY do. So even if you think he means all of the new pro-deficit talk in terms of a depression economy, then you’re still left with the implication that massive budget deficits won’t get us out of the slump even in the long-term.

In conclusion, I think Occam’s Razor says that the best explanation is that deficits are awful when they are the fault of George Bush. When the incoming Barack Obama pledges them, and Paul Krugman says any fiscal stimulus number should be doubled to get it right, then DeLong can only bring himself to say that HUGE LONG-TERM deficits would EVENTUALLY slow down economic growth SOMEWHAT.

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