I’m not exactly sure which links I’ve put here already, but I’ve been busy (there is the possibility that if you can’t remember what you’ve been writing, you’re either writing too much or getting too old; I know the latter is true; not sure re former).
WaPo PostEverything Posts:
—There’s a leaked proposed rule from team Trump that expands the definition of “public charge cases,” wherein immigration status is threatened by use or expected use of public benefits. Here’s why the
daft draft rule is destructive and counterproductive. My intuition is that it won’t block people from coming here; it will lead to disinvestment in them and their kids once they’re here.
—Yes, inflation and interest rates are definitely picking themselves up off the mat. That’s a good and expected development at this point in the cycle. Do not confuse heating with overheating.
—One profound challenge we face in gauging economic capacity is that economists cannot identify the lowest unemployment rate consistent with stable inflation or the level of GDP at full potential.
—Unless we’re willing to put new revenues on the table, deficits and debt will only continue to grow.
Here’s a fun episode of The Indicator, one of my favorite, new podcasts, wherein I explain how I ambivalently welcome that the current slug of stimulus. Yesterday, I listened to about five of these episodes in a row–they’re short–and I gotta tell you: huge bang-for-buck in terms of engaging and even entertaining info/minute.
Sticking with fiscal policy, Paul K has a column up today wherein he appropriately excoriates the hypocrisy of Republicans on their transparently phony fiscal rectitude, along with self-identified “centrists” who have, in their play to appear balanced, long refused to recognize the truth that these alleged fiscal hawks are and have always been chicken hawks. The deficit matters to them if and only if it can referenced to a) block Democratic spending initiatives, and b) leverage cuts to any government program that doesn’t redistribute income toward their donors.
If I may add an editorial comment outside my econ zone, consider conservatives’ indifference to debt (tax cuts), the safety net (Trump budget), and gun control. These policymakers should never be allowed to say another word about their concerns for children or future generations. Their actions completely belie any such claims.
But the point I wanted to add to Paul’s piece is a political economy one. Politicians have never paid a price for adding to the debt. To the contrary, George HW Bush paid a price for raising taxes to try to do something about red ink. One reason for this political non-cost is that all that deficit spending has not had the negative impacts economists’ typically claim.
A voter might vote against a politician who raised taxes or opposed abortion rights or was hostile to immigration. These are all very clear positions. But, based on the empirical record, our voter can be wholly forgiven for discounting arguments about the impact of public debt on interest rates, growth, and jobs.
I’ve argued that, in fact, deficits do matter. In weak economies, we often need them to be larger than they are, but as we close in on full employment, we generally want fiscal gaps to close (though listen to my Indicator interview above for some nuance re the current moment).
I’ve got four reasons:
Political reasons: it’s a lot harder to sustain support for programs that are deficit funded;
Fiscal reasons: any spike in interest rates is more expensive at high public debt levels than low ones;
Recessionary reasons: though there’s not much of an economic rationale for it, it’s clear that policymakers will apply less fiscal policy to offset recessions at low vs. high fiscal space;
Economic reasons: though we haven’t seen it for decades, if the economy is already at capacity, it’s likely that deficit spending will generate not jobs or growth, but just higher inflation and interest rates.
When you consider the politics, it may only be the first and last reasons that catch voters attention. If higher deficits can clearly be linked to economic hardship voters are experiencing or the loss of programs they value, those voters may discipline fiscally reckless policy makers.
But that’s just a conjecture on my part. There must be someone out there who has cast a vote against a politician based on their fiscal recklessness, but I’ve never met them.