Weekend Papers: Part III, Wherein I Get a Touch Hawkish

June 9th, 2013 at 7:06 am

[Family’s away, can’t do yard work given the rain (well, could do some, but don’t want to), so better to sit on the back porch with an intravenous coffee feed and blog the weekend papers…right?]

I will assert that I have solid street cred when it comes to tamping out deficit hysteria everywhere I see it.  I have consistently inveighed against austerity, blood-letting, and hypocrites who pretend to be fiscal hawks but really just want to slash and burn the public sector.

That said, I thought this WaPo piece made a decent point, up to a point, on the fact that even with recent, significant improvements in the fiscal picture, we are not out of the fiscal woods.

In this biz, you need to be a CDSH—cyclical dove, structural hawk—and in that regard, the deficit is coming down to fast now when the sluggish recovery still needs fiscal support and going up later when it shouldn’t be, as shown in the figure here.  So there’s reason, as the Post piece suggests, to be mindful of the SH part of that acronym above.

Here’s, however, where I depart with most of the SH’s cited in the article, and with the use of the word “urgency” in this debate, and I think this is a very important and salutary distinction.  This is neither the time nor the Congress with which to make fiscal deals that will be in the nation’s economic interest.  The improving budget picture and especially the slower growth of health care spending (since that, along with reduced revenue collections, are where the fiscal pressures are coming from) give us some breathing room.

This conclusion about timing stems from the fact that many conservatives in the current debate have two goals: to avoid new tax revenues and to cut non-defense spending, including supports for economically vulnerable people and social insurance.  Moreover, they are thoroughly uncompromising in those pursuits.  Therefore, I view the recently improving fiscal picture as an excellent reason for not making rash deals with those who would do long-lasting damage to our safety nets, public goods, and social insurance.

Print Friendly, PDF & Email

6 comments in reply to "Weekend Papers: Part III, Wherein I Get a Touch Hawkish"

  1. Jim says:

    The concern about being a fiscal hawk over the long term doesn’t really make sense to me if the objective is to assure long term ongoing full employment / prosperity.

    Everyone from the center to the far left agrees we need fiscal spending now. Why? Because there’s high unemployment and under employment.

    But why the emphasis on long term hawkishness? Are we really saying anything more than: if we achieve full employment in the future (long term), then we shouldn’t be spending as much fiscally? Isn’t that simply obvious? It’s not really policy so much as what’s naturally expected given increased tax revenue and reduced need for unemployment related outlays.

    Those who support long term hawkishness though seem to be saying more than this. That we need sometime in the “long term” to institute some type of austerity regardless if we have high un/under employment. On a “real” economy basis, this isn’t this a complete waste and completely unnecessary? Who possibly benefits from requiring people to live below what our collective productive potential permits?

    To promote long term hawkishness, then, seems to be elevating the “financial” over the “real” and accepting the rather preposterous notion that our living standards should be legitimately limited by something other than our real productive capacity – i.e. the “financial”.

    Elevating the “financial” over the “real” is inevitable as long as one accepts that public spending needs to be “financed” through debt. But by what reason, other than an orthodoxy quite friendly to the status quo, should this be true? If we have unused resources, why not just create the purchasing power directly without associating it with debt? It should never be inflationary unless we’re already at full employment.

    So, I’m confused why any progressive economist would ever take the long term deficit hawk position, unless it’s nothing more than a statement that there’s never a need to keep spending when everyone’s already living well, or we can’t ever have more than 100% employment or we can’t live beyond our “real” productive capacity.

    • Jared Bernstein says:

      To me, long-term fiscal hawkishness simply means the following:
      –taking seriously the predictions that health care spending per capita will continue to outpace GDP/cap, meaning an ever increasing share of our output goes to (inefficiently delivered) health care;
      –lowering the stock of public debt so we’re less vulnerable to interest rate spikes;
      –lowering the debt/GDP ratio so the next time we hit a recession, it can go up again;
      –collecting enough revenue to support a functional federal sector supporting public goods, retirement security, and a safety net (I leave out defense because I know I don’t have to worry about that one).

      • Jim says:

        –lowering the stock of public debt so we’re less vulnerable to interest rate spikes;

        But isn’t Bernanke doing that already with QE? At $85 billion per month, the federal debt isn’t growing. And financial markets everywhere know that the interest rate is controlled by the Fed. Why not always keep the interest rate at zero, do as much fiscal spending as is needed to keep full employment, and be done with it? Why should those with wealth be entitled ever to a risk free rate of return? And why should prosperity ever be limited by a need to borrow from consolidated wealth?

        –lowering the debt/GDP ratio so the next time we hit a recession, it can go up again;

        Why not make some changes so that there is no next time for a recession? Surely one of the least radical ways to do that is to always assure there’s enough purchasing power in the economy.

        –collecting enough revenue to support a functional federal sector supporting public goods, retirement security, and a safety net (I leave out defense because I know I don’t have to worry about that one).

        Again, the focus on finance is what’s keeping prosperity back and guaranteeing a future of unending crises and recessions. Why not start with the basic fact that the dollar is fiat and that “revenue” is never a problem? You refer to a functional federal sector, which brings to mind Abba Lerner’s Functional Finance. A critically important perspective.

  2. Kevin Rica says:

    CDSH—cyclical dove, structural hawk

    But if low growth is structural (the “New Normal”), you are looking at the wrong question. The problems aren’t cyclical and counter-cyclical policy just treats the symptoms and not the disease. Like plenty of pills in the pharmacy, you can only take them for so long until the side-effect profile becomes too serious (you are paying too much in interest on the debt).

    Eventually, someone from either party needs to have an original idea. They need to explain why the economy is growing so slowly and creating jobs and they need to figure out how to change that.

    Remember the old joke that to the effect that Democrats are always coming up with new mistakes and Republicans stick with their grandfathers’ mistakes. Republicans haven’t changed and Democrats keep repeating the mistakes of their undergraduate professors (but their undergraduate professor went to Harvaard).

    Both parties have their own, self-contained belief systems. If an alien thought ties to penetrate, they immediately detect the intruder and denounce it as heretical.

    The country is in trouble.

  3. Tom in MN says:

    So what does “cyclical dove” mean near full employment? Does it mean raising taxes and reducing investment spending to keep inflation under control and paying off debt with the surplus? Clinton managed it for a bit — R’s grow the debt like crazy.

    If so then it directly agrees with structural hawk position in good times, which makes perfect sense to me over the long term. But we seem to have trouble with giving away tax breaks in good times and forgetting about the debt. In times like now the fact that short term and long term goals appear to be opposed (need to raise the debt temporarily) is just hard for most to understand and easily exploited by the R’s to cut social programs — the darned family budget nonsense.

    I think selling policy that “depends” on the state of the economic cycle is just hard. Pounding on people for flip flopping has become an art form and no credit is given for logical thought.

  4. Jim says:

    If you get down to the fundamentals, what we have seems to be a basic question of power – i.e. who rules our society. Is it democracy or some form of oligarchy – i.e. rule by wealth.

    Since the beginnings of industrial capitalism, the separation of the “economic” from the “political” has been a root doctrine and understandably so from the perspective of power. How else to keep power associated with money? And to tame the threat of democracy?

    We now have a near perfect global oligopolistic system with both corporate and financial power more concentrated than ever before. And a population ever more reliant on them for employment.

    We have a fiat currency that could be used to guarantee wide consistent prosperity. But, instead, our “economic” orthodoxy remains entrenched in an ideology that sees power over money as belonging essentially to concentrated financial wealth – i.e. the oligarchy. We, as a society, are led to believe our living standards are limited by what we can tax or borrow from these owners and that we can’t spend unless we incur debt with them. What a strange relic from feudal times! There’s no natural law that this must be so, it’s just a reflection of where power lies. And it gives us the sad absurdity that we have billions in the world who live in poverty while at the same time we have the most advanced productive capacity. Surely one of the prime roots of this tragedy is the power over spending that’s been ceded to the financial “markets”.

    So I think we should be clear that commentators who perpetuate the myth that spending beyond tax collection must be borrowed from concentrated wealth and that we carefully manage the level of our debt, are ultimately just bowing to the existing power equilibrium.