Why Deficits Matter

Bull Moose thinks that the Democrats should emphasize deficit reduction, while Chris Bowers thinks such a strategy might compromise other progressive values. Where should we be on this issue?

I come down firmly on the side of the deficit hawks. In fact, the deficits of the first Bush administration is part of the reason I am a Democrat. I can envision circumstances in which deficits are no big deal. In the 1960's and 1970's, when the budget was in structural balance, a small deficit was nothing to sweat about. But beginning with the Reagan tax cuts, he entered a brand-new era in which the federal government adopted the same fiscal strategy as the typical American household (borrow borrow borrow) with dire results. If we keep at it, the U.S. economy will totally collapse. That is a problem which transcends tactical political calculation - it is a real crisis, and we have to come to grips with it.

Some liberals have said that attacking the deficits just plays into the hands of Republicans. This is the infamous "starve the beast" strategy. If conservatives create huge deficits, then they can be used to justify cuts in social spending. If Democrats take over and decide to deal with the deficit, they either have to imitate Republicans or raise taxes, thereby serving either the policy or political interests of Republicans.

While I admit to the force of these arguments, I don't think they are decisive. There are ways around the Republican trap. First, I think we use deficits as a political bludgeon, much like Harry Reid's "birth tax." Second, I think it might be worthwhile to revive Clinton's distinction between investment (where borrowing is appropriate), say in education or infrastructure, and welfare spending, which should be financed out of available revenue. Third, it might be possible to craft our own version of a "starve the beast" strategy, where Republicans are faced with tremendous political pressure to raise spending or taxes. While it is certainly foolish to count on their sense of political responsibility, we could in fact make that the issue. I and other have argued that Responsibility is a unifying theme for the left. We can articulate an agenda that combines fiscal responsibility with social responsibility, which means we would be arguing for no debt and social spending at the same time.

Finally, we need to recognize that the real culprit of the deficits is the Bush tax cuts. Democrats can get a lot of mileage out of attacking corporate welfare (screw them, I say!), and we can use the issue of tax reform to our advantage. Remember, tax reform has two different elements: simplicity and flatness. The Republicans are focused on flatness (i.e. regressivity), which is politically unpopular, through the means of simplicity, which people like. But Democrats could construct a version of tax reform which also uses the popularity of simplicity in order to achieve greater progressivity. All it takes is a little political creativity.

So I think it is both politically feasible and morally necessary to figure out how to have our cake (budget balance) while eating it (social spending). What we need is a bigger cake.