June 10th, 2013 at 7:25 pm

Often when I suggest that one should be a cyclical dove/structural hawk (CDSH), I get pushback from readers who say, essentially: no, you should be a cyclical dove/structural dove (CDSD).

This often reminds me of an anecdote I’ve heard but never corroborated (which leads me to believe it’s made up) wherein Keynes was meeting with some American economists who espoused large budget deficits even in strong recoveries, to which he responded, “Why, you’re even more Keynesian than I am!”

So why does a guy like me—someone whose hair has never been engulfed in the flames of deficit alarmism–advocate that deficits should come down to at least primary balance* once a bona fide recovery is solidly underway?  For these reasons:

Lowering the stock of public debt makes us less vulnerable to interest rate spikes.  This is just simple math and I can’t imagine that too many folks would disagree.  Just to paint a simple picture, the figure below shows the difference in net interest payments generated by a pretty mild difference of four percentage points in the debt/GDP ratios of the CBO baseline and the President’s budget.

The President’s debt/GDP ratio gets down to 69.8% in 2023; the CBOs to 73.6%.  Over the 10-year window that leads to $92 billion more in debt service.  To be crystal clear, I am decidedly not advocating that we try to lower the public debt “before its time,” i.e., at the expense of offsetting recession or supporting a still-weak recovery like this one.  No austerion, I.  But I do think the arithmetic here is correct and compelling.

Lowering the debt/GDP ratio during recovery is important so the next time we hit a recession, it can go up again.  This is economic is the sense of the first bullet above (and some below), but it’s also political.  Politicians will be more loathe to entertain fiscal stimulus—and the Fed, possibly, re monetary stimulus—if the debt ratio has not reset at a lower level following a real recovery.

Health care costs.  Despite the fact of the recent significant and important slowing in the growth of health care spending, gains I take seriously, the predictions are that such spending per capita will continue to outpace GDP/capita, meaning that we will continue to devote an ever increasing share of our output to our still highly inefficiently health care sector.  To the extent that structural doves do not share that concern, I cannot fly the fiscal skies with them.

–Finally, we are simply not collecting enough revenue to support a functional federal sector that we can count on to support robust investment public goods including education, retirement security, and a safety net (I leave out defense because I don’t believe I have to worry about that one).  That concern relates to structural hawkery because it points toward a structural deficiency in a tax system that has grown out of decades of asymmetrical tax policy: taxes can only go down, never up.

There may be more reasons for being an CDSH over an CDSD, but I’ve gotta run to Monday night basketball.

*This just means that the government is collecting enough revenue to pay for current services but not necessary enough to service its debt payments.  Once your deficit is in primary balance, your debt/GDP ratio generally begins to decline.


Source: CBO

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5 comments in reply to "CDSH or CDSD?"

  1. Jim says:

    But you omit the fact that the $ is a fiat currency. It doesn’t really make sense to call our federal debt “debt”, given that it can be monetized at any point. Inflation risk? I don’t see why it s/b as long as we don’t spend more than the capacity of the economy.

  2. Jim says:

    The structural hawk position still seems unclear to me.

    Are you simply saying that if we ever reach full employment, a state we almost never have achieved, then and only then would you favor a hawkish position?

    Even that position though, is something less than what I’d call “progressive”, for it still allows for ongoing poverty and low wages. I find it sad that mainstream “progressives” have so hard a time simply putting full employment and widely shared prosperity as the 1st goal. Surely we have the “real” productive capacity to achieve it. Why allow such an artificial thing as finance get in the way?

    • Kevin Rica says:


      “Mainstream progressives” (body snatchers) gave up on high wages and eliminating poverty once they decided to provide employers with an unlimited supply of cheap immigrant labor in order to prevent “labor shortages” (the natural mechanism that raises wages in a market economy).

      Maybe Chuck Schumer’s body belonged to a Democrat once, but the little space alien that took over his brain is a plutocrat put there by the Chamber of Commerce. Don’t confuse him with Harry Truman.

  3. Kevin Rica says:

    More debt means that more tax revenues have to be paid to holders of government bonds. Why would we want that unless absolutely necessary?

    Fiscal stimulus is a short-term emergency measure, not long-term fix. It’s like a tourniquet — you don’t want to use it too long. You need to fix the real problem quickly.

    This administration keeps trying to do Rubinomics: fighting the last currency war. If that fails they want to find some formula they learned at Harvaard.

  4. smith says:

    Regarding the last point about revenue:

    “–Finally, we are simply not collecting enough revenue to support a functional federal sector that we can count on to support robust investment public goods including education, retirement security, and a safety net (I leave out defense because I don’t believe I have to worry about that one).”

    What I’m wondering is why there isn’t a bullet point about cutting government waste. Progressives cede this ground at great peril, letting conservatives hide behind responsible spending arguments when their motivation is to cut programs. Does anyone really believe that there isn’t a lot of waste in government spending? Constant pruning is necessary, which shouldn’t mean cutting basic research or shortchanging military payroll. But start at the top, the President and Congress make too much in salary, their staffs are bloated, dollars are spent on education without results, and defense spending stories are legion. Always include this bullet point before the one about raising taxes.