Tuesday, March 01, 2011

Impatience and government spending

It's remarkable to watch the march towards a possible government shutdown (even if it is likely to be delayed for 2 weeks) based on the Republicans' insistence on budget cuts that reputable independent reports suggest will cost 700,000 jobs and result in significantly lower GDP growth.

A shutdown would have further recession-enhancing effects, and let's not even think about the debt default that many of the rank-and-file House Republicans appear eager to orchestrate later this year. Evidently, they are willing to do great harm to the recovery if it advances their goal of doing great harm to the recovery.

The House leadership's rationale, a combination of indifference and "we can't afford these jobs so it's immoral to debt-finance them," is insulting to the intelligence. To begin with, as anyone with budget awareness knows, they, along with President Obama when he focuses on spending cuts, are being what Howard Gleckman of the Tax Vox Blog called anti-Willie Suttons, looking for deficit reduction where the money isn't.

For another, the constantly repeated "we can't afford it" mantra, alongside advocacy of huge tax cuts, involves treating all of us in the audience as if we were idiot children. The last time I checked, there actually were two sides to the budget, revenues and outlays, and the relationship between the two is what leads to sustainability problems. Their deliberate rhetorical strategy is to make any increase in revenues, relative to their baseline that involves multi-trillion dollar reductions in infinite-horizon revenue relative to present law, literally not possible or even thinkable.

There are reasonable arguments for different budgetary equilibria, involving higher versus lower revenues on the one hand and government provision of goods and services (or simply cash) on the other. The argument that we should aim low rather than high, within the spectrum that's up for debate in the U.S., can reasonably be made. And if you want to aim low rather than high, pushing against higher taxes at every opportunity has a rationale.

But treating higher revenues (defined to include keeping present law!) as literally unthinkable is simply an insult to all thinking people who favor honest consideration and discussion of all plausible options.

In addition, their astounding willingness to risk massive job loss under present macroeconomic conditions tells one a lot about whether they ought to be in a position to affect millions of people's lives. The more charitable explanation, which I consider the more likely one, is that they are so insulated from empirics (cf. global warming or evolution) that they simply rule out the possibility of massive job loss - which, in fairness, not all reputable analysts endorse though I believe most would - without honest inquiry. The harsher explanation would be that they hope a heightened recession would be blamed on President Obama and help them in 2012. But that strategy would require them actually to know something.

Let me offer a comparison, given that their underlying long-term goals are within reasonable debate. I think the home mortgage interest deduction is one of the worst rules in the federal income tax, and I strongly favor its elimination. But suppose I had the power to repeal it cold turkey today - or, better yet, suppose the opportunity had arisen back in 2008 or 2009 at the peak of the mortgage default crisis. I certainly wouldn't go ahead with an immediate repeal, because I would realize it would be unacceptably likely to cause a fresh wave of defaults. But if they shared my view of this issue, they would go ahead and do it anyway.

Lady Bracknell observes in The Importance of Being Earnest that "[i]gnorance is like a delicate exotic fruit; touch it and the bloom is gone." She didn't realize how willful and resilient it can be.

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