Saturday, March 19, 2011

What did the voters know and when did they know it?

James Kwak at the Baseline Scenario blog is kind enough to quote me being, I guess, prescient 4 years ago when I wrote:

"U.S. political leaders now seem determined to follow Nero’s reputed example when setting budget policy. They dicker with trivial deficit reduction packages, and then on a regular basis stoke the fire by passing much larger tax cuts, while the long-term budget picture keeps getting worse. They know what is happening, as do the voters."

Kwak continues:

"That’s from Taxes, Spending, and the U.S. Government’s March Toward Bankruptcy by Daniel Shaviro, a tax professor at NYU’s law school (and blogger). Despite the apocalyptic title, the book is less about actual fiscal policy and more about the language we use to debate fiscal policy — and how that language is notoriously unhelpful, except perhaps for ideologues. For example, eliminating the mortgage interest tax deduction would increase tax revenue, which conventionally is thought of as 'bigger government'; but it would reduce the distorting effects of government policy, which means the government would have a smaller impact on the economy.

"The book was published in 2007 — that is, before the latest turn of the wheel, in which a $900 billion tax cut is being rapidly followed by a spending cut that will range somewhere between $10 billion and $60 billion, yet could reduce GDP on the order of one percentage point this year.

"My only quibble is with the last sentence: 'They know what is happening, as do the voters.' On that point, I think Krugman may be right. If voters really knew what was going on, then at some point the politicians couldn’t get away with the nonsense they continue to spout."

I think the voters do in fact at least quasi-know. I've never talked to any "lay" person about the U.S. fiscal situation and found that he or she was surprised or that the horrendous long-term picture was in any way news. Sure, people are confused about the details - not understanding, for example, the triviality of the budgetary savings that are being debated this year relative to the cost of extending the tax cuts - just as they apparently believe, for example, that half the U.S. budget goes to foreign aid. But there is a strong element of deliberate intellectual laziness founded on self-interest - if you let yourself understand it, you may have to contemplate solutions that would be bad for you. Why not wait and hope that it will be solved on someone else's back?

If Krugman were right, the political "market" would operate better. A politician (Obama?) would have something to gain by pointing out the truth. This doesn't seem to be so, however.

Kwak is right about the title of my book. My proposed title was "The Use and Abuse of Fiscal Language." The publisher didn't like that as much as the "March Toward Bankruptcy" concept, and no doubt was 100% correct from a commercial standpoint, which is not to say that the sales as is have been all that staggering.

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