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The possibility of deficit reduction

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It didn't fit in the last post, but I also wanted to quote this bit from David Leonhardt's column:

Complaining that Congress and the White House aren’t doing enough to reduce the deficit is always a popular pundit game. So it’s no surprise that the last few weeks have been filled with knowing claims that health reform will fail to control spiraling health costs.

Sometimes, however, Washington really does succeed in reducing the deficit. Presidents Harry Truman and Dwight Eisenhower both did it. President Bill Clinton and Congress eliminated the deficit. Their 1993 budget bill was derided by some of the same people now criticizing health reform as an economy wrecker. Instead, that budget bill created the first significant surpluses since the late 1940s (and helped make possible the 1990s economic boom).

Worth keeping in mind. Critics are right, of course, that Congress might not stick to the deficit reduction built into the health-care bill. In that way, cost controls are uncertain even when they are present. But they are a lot less uncertain than the outcome of inaction. Cost controls might not work when you try them, but they definitely don't work when you don't.

By Ezra Klein  |  November 25, 2009; 3:31 PM ET
Categories:  Budget  
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Comments

The HUGE difference between now and after WWII is that then there was not this huge number of elderly people with and expectation of services (livelihood actually) from the federal government. Back then, we could just stop spending on the war and balance the books. Now all our spending is mandatory spending that people feel entitled to.

That graph does not at all reflect how scary the situation is right now and how few levers there are to pull to get this federal budget back on balance because it does not show the new realities of how a budget is on auto pilot with the is rather new thing in America called a social safety net.

Posted by: lancediverson | November 25, 2009 4:03 PM | Report abuse

Ezra,

You should check Dean Baker's Beat the Press blog before posting anything about economics from the NYTimes, WaPo, etc. because otherwise you might inadvertently pass along questionable assertions or conclusions. This is what Baker had to say about that section of Leonhardt's column you included in your post:

"David Leonhardt told readers today that President Clinton's deficit reduction package: 'helped make possible the 1990s economic boom.' The basis of this assertion is not clear.

"The two main components of the boom were an uptick in productivity growth and a stock market bubble that fueled a consumption consumption boom, which drove the economy in the late 90s. The uptick in productivity growth was the result of the effective use of information technologies. It was not associated with any extraordinary rise in investment. Investment largely followed a normal cyclical pattern in the decade. It's possible that deficit reduction helped create the psychology that drove the stock market bubble, but this would presumably not be an argument for the benefits of deficit reduction."

Fred Brack, Seattle

Posted by: fredbrack | November 25, 2009 6:57 PM | Report abuse

What is certain though are the expenses. If we are 100% sure that the bill will generate future expenses, but not 100% sure that the cost savings will be realized to offset those expenses, then all of a sudden the expected value of the bill becomes negative. And that expected value becomes increasingly negative as the uncertainty of the cost savings increases.

This means the bill might not be such a "grand bargain", it might just be a one-sided bet. The uncertainty of the cost savings is a pretty big issue for the other party in the trade-off.

Posted by: mickey7410 | November 25, 2009 7:17 PM | Report abuse

@fredbrack: Because of course Dean Baker is the ultimate arbiter of all that is holy and true?

A little skepticism is healthy all around. We have more than enough resources to provide a robust social safety net if that's what our country decides to do. The same is true for reducing the deficit (which I would argue is a less worthy goal). Unfortuantely we have idealogues allied with those who benefit from the status quo to block any solution. It's a political problem. Obama came in with a mandate to break the logjam, and he largely frittered it away. It's a shame.

Posted by: bmull | November 25, 2009 7:27 PM | Report abuse

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