Now that projections show the budget surplus to be dwindling, leading Democrats have become latter-day acolytes of Calvin Coolidge, tut-tutting over the possibility that the Bush budget might cause the nation to go into the red. Horror upon horrors! A deficit may be looming!
These Democrats conveniently forget that government deficits are entirely appropriate when the economy is tanking, as it seems to be doing right now. John Maynard Keynes, the Democrats' own economic guru for most of the last century, showed why it was stupid to rely solely on central banks to lower interest rates. If all the productive resources of an economy are to be utilized, it's sometimes necessary for the government to spend more than it takes in.
The new budget projections give more credence to Democratic charges that President Bush's $1.35-trillion, 10-year tax cut and his budget are based on sloppy math and plain dishonesty. Inevitably, Democrats say, the administration will have to raid the Social Security and Medicare surpluses to deliver on promises to increase spending on the military, education and prescription drugs. This may be true. But the real scandal of Bush's tax cut is that most of the $1.35 trillion will go to people who are already very rich. This makes no sense socially in a society becoming ever more divided between have-mores and have-lesses. And it makes no sense economically. Richer people are far less likely to spend the extra money they get from the government than are poorer people, for the obvious reason that rich people already spend what they want to spend. It is poor and middle-income people who need or would like to spend more.
By centering their criticism on the likelihood that Bush will unbalance the budget, Democrats are springing a fiscal trap on themselves. Their pious pronouncements about fiscal rectitude suggest that they might go along with even deeper cuts in spending to keep the budget balanced. Democratic congressional leaders even have said they'd be willing to cut spending on education and health care to avoid dipping into the portion of the surplus that comes from Social Security payments.
Worse yet, the theology of fiscal responsibility prevents Democrats from proposing anything that might require substantial new spending, even if it might enlarge the nation's productive capacity in the future. And it precludes any move toward affordable and universal health care for young people, substantially more funding for schools, better preschool care and affordable mass transit. As President Clinton wisely noted at the start of his administration (but later forgot), it's better that government borrow money to do things that are likely to enlarge the nation's productive capacity than that the nation do without them.
Republicans have no qualms about using Keynesian theory for their own ends and simultaneously reverting to their own supply-side notions about how to generate economic growth despite budget deficits. The rich, they say, will apply their talents with greater verve if their take-home pay is in the stratosphere rather than merely sky-high. Supposedly, all this will spur economic growth and buoy tax revenues enough to fill any fiscal shortfall. But we tried this theory in the 1980s and it failed.
What has not been tried--we didn't give it a chance in the Clinton administration--is the Democrats' fundamental alternative. That is to expand the economy by investing public spending in people; not just rich people, but everyone.
We may never have a chance to try if the Democrats keep insisting on "fiscal responsibility" and demanding that the budget be balanced. The American public won't ever know what's really at stake behind the warring numbers over taxes, the budget and Social Security if Democrats go on saying that austerity leads to economic growth, while Republicans advocate throwing a party with the money they save not paying taxes--and if they're rich, throwing an even bigger one.
No one is talking about the central economic importance of investing in our nation's people. And that's about as fiscally irresponsible as you can get.
Copyright 2001 Los Angeles Times