Nothing can put a bigger smile on an old cynic’s face than the normally predictable throwing a twelve to six curveball. Such is what occurred this morning when I opened up a Newsweek article by Robert Samuelson entitled: “Utterly Shameless; How could President Bush publicly brag about a federal budget with a $296 billion deficit?”
After seeing that head and sub-line, I prepared to do battle with what I expected to be the usual liberal mantra concerning budget deficits. Unfortunately, Samuelson didn’t cooperate, for scattered throughout his text was more sense coming from a Newsweek columnist not named George Will than I had seen in decades.
Now, I must caution the reader ahead of time to be prepared for some almost unprecedented sanity from this unlikely source (emphasis mine):
First, budget deficits are not automatically an economic calamity. Their effects depend on their timing, their size and other economic conditions. During recessions, deficits may prop up the economy. In a boom, they may drain money from productive investments. Similarly, deficits are only one influence on interest rates; others include inflation, the demand to borrow, the supply of savings and Federal Reserve policy. At present the effect of deficits is modest; otherwise, rates would be higher than they are (about 5 percent on 10-year Treasury bonds).
Unbelievable. I agreed with every single word. But Samuelson was just warming up:
What truly matters is government spending. If it rises, then future taxes or deficits must follow. There's no escaping that logic. The spending that dominates the budget is for retirees. Social Security, Medicare (health insurance for those 65 and over) and Medicaid (partial insurance for nursing homes) already exceed 40 percent of federal spending. As baby boomers retire, these costs will explode. Unless they're curbed, they'll require tax increases of 30 percent to 50 percent over the next 25 years.
Amazing. Can’t disagree with any of this, either. He shockingly continued:
Second, the budget should be balanced—or run a surplus—when the economy is close to "full employment," as it is now. Balancing the budget forces politicians to make uncomfortable choices. Which programs are sufficiently needed or popular to justify unpleasant taxes? Balancing the budget also lightens the debt burden.
Darn right. If you can’t balance the budget when the economy is doing well and tax receipts are rising, how are you going to do it when the downturn comes? But there was more:
I have reserved my harshest scorn for Republicans, who are (after all) in power. But Democrats aren't much better. The nub of the matter is spending. When Republicans passed the Medicare drug benefit—the biggest new program in decades—Democrats actually advocated a more costly version. Whenever anyone suggests curbing spending, Democrats screech: Spare Social Security and Medicare. But Social Security and Medicare are the problem.
Darn right again – Social Security and Medicare are the problem. Isn’t it amazing reading that in a liberal weekly like this? But the best was yet to come:
Just as Republicans now say their policies have cut deficits, Democrats contend their policies produced budget surpluses from 1998 to 2001. Nonsense. Those surpluses resulted mainly from the end of the cold war (which lowered defense spending) and the economic boom (which created an unpredicted surge of taxes). In a $13 trillion economy, much of what happens has little to do with the White House's economic policies. The bipartisan reflex is to claim credit where little is due.
Imagine that. A liberal magazine admitting that the budget “surpluses” under Clinton had nothing to do with Democrat policies during that era. Shocking, but of course quite correct. Samuelson accurately concluded:
Meanwhile, it is precisely because the deficits don't threaten immediate economic turmoil that they are politically appealing. Nothing significant will happen because it's in no one's interest for anything significant to happen. Republicans don't want to raise taxes or restrain their spendthrift habits. Democrats love big deficits as rhetorical grenades to lob at the Republicans. The present paralysis is perfectly understandable.
Perfectly understandable, but as the headline suggested, utterly shameful.
Bravo, Bob. You are one of a very small number of mainstream journalists willing to publicly admit that which is and has been obvious to many economists and fiscal observers for quite some time.