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Where are the deficit deals?

"For a policy centered around economic growth to be credible in the short term we must show a commitment on returning to a fiscal sustainable path over the medium- and long-term." That's Larry Summers talking to E.J. Dionne and no, it's not the most graceful quote in the world. But at this point, it's pretty much the consensus position among policy wonks: The reality of a recession that requires more spending now paired with a deficit that will require substantial cutbacks later makes the basic contours of a deal obvious: Trade short-term stimulus for long-term deficit reduction.

This is, in fact, a particularly good time for deficit hawks to make this deal. So far as carrots go, stimulus has the dual advantages of being both needed and, in the scheme of things, fairly cheap. If that can be your bargaining chip with at least a few liberals, it's much preferable to the deals you'll have to make in a conference focused exclusively long-term deficit reduction.

But few seem very interested in making these deals. I count this as the second major missed opportunity for conservative deficit hawks in the Obama presidency. The first was health care, which ended up being admirably fiscally responsible, but which could've been even more so if one or two or three or five Republicans had been willing to trade their votes for deficit-reducing, cost-controlling concessions. Similarly, if a Republican or two released a proposal pairing $300 billion in immediate, serious stimulus with $600 billion in even semi-balanced cuts timed to take effect between 2013 and 2020, they could either get what they're asking for or put the Democrats in a very difficult position.

And yet, nothing. The Republicans are using their leverage to get back into power, not change policy, but once they're back into power, they'll have no more leverage over the minority Democrats than the Democrats have over them today.

By Ezra Klein  |  June 14, 2010; 9:47 AM ET
Categories:  Budget  
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Comments

"The Republicans are using their leverage to get back into power, not change policy, but once they're back in power, they'll have no more leverage over the minority Democrats than the Democrats have over them today."

Well, no. Take it from someone who's closely observed the two parties for a longer stretch of time: once they're back in the minority, the Dems will pretzel themselves to accommodate the most radical of GOP ideas. There are so many historical examples to choose from but the run-up to the Iraq war is a fairly recent example.

Posted by: scarlota | June 14, 2010 10:33 AM | Report abuse

It's odd that the administration isn't proposing some kind of medium-term deficit reduction - it would seem to be not only good policy but a political winner. The only reason I can think of for not doing so is concern that any cuts might upset the base, and that the base will be more helpful in November than independents who may be swayed by deficit reduction.

Posted by: jduptonma | June 14, 2010 10:37 AM | Report abuse

Also, Ezra, you should recall that Summers and Geithner originally advocated for a smaller stimulus -- one stuffed with major tax cuts for the affluent so as to gain Susan Collins' vote -- rather than opting for a more robust plan with a higher price tag, as recommended by their colleague Romer and such DFHs as Krugman and Steiglitz. So for Summers to yammer now about more stimulus is beyond disingenuous.

The political moment to go full monty on Keynesian spending was the spring of '09, when the President's approval ratings and the Democrats' political fortunes were in better shape than in summer of '10. I can't for the life of me figure out why the good E. J. failed to mention Summers' views from that first stimulus debate.

Posted by: scarlota | June 14, 2010 10:42 AM | Report abuse

When, exactly, are people in DC going to notice that Republicans don't really give a fig about deficits?

If the fiscal legacies of Reagan & Bush weren't enough, what exactly will be?

Seriously, you guys are in DC every day. The entire point of being there is for you to get a fuller picture of what politicians DO, not just what they say.

The Republicans have awesome deficit slogans. But their actual POLICIES over the last 30 years are, almost without exception, stunning increases in the deficit and national debt.

Last year, their response to the stimulus was a LARGER deficit-financed package of less effective tax cuts, aimed at top earners. Even now, Boehner is proposing we fix our current economic problems with...tax cuts for the wealthy!

If you're a member of the Republican party, you're comfortable with endless, growing deficits. Period. At this point, that's the biggest difference between the two parties--Democrats overwhelmingly practice fiscal responsibility, and Republicans are fiscally profligate. They have a lot of rationalizations about why endless deficits are good...but basically, fiscal responsibility isn't part of their governing agenda (though it is a HUGE part of their campaigning agenda. Hence, awesome slogans).

It's occam's razor, here. The reason you haven't seen any Republicans making any "cut the deficit" deals on legislation is because they don't particularly care about cutting the deficit.

Posted by: theorajones1 | June 14, 2010 10:42 AM | Report abuse

What theorajones1 said. Wake up, Ezra.

Posted by: scarlota | June 14, 2010 10:44 AM | Report abuse

I think the bottom line is that the GOP wants to cut spending, but doesn't want to pay the political price. So they play the debt card to help in November, but also to provide cover for major spending cuts later.

Posted by: jduptonma | June 14, 2010 10:52 AM | Report abuse

Neither side really understands deficit control. For that matter, neither seems really to understand economics. And in particular we know from long exdperience that the GOP doesn't really care about deficit control except as a cudgel to beat to death any Democratic programs that seek to either help the bottom 80% or at least stop the growing concentration of wealth in the hands of the top 1%.

The GOP cares only about getting power and helping the rich. The Dems seem to care just about staying in office.

Posted by: Mimikatz | June 14, 2010 11:09 AM | Report abuse

"Neither side really understands deficit control."

Uh, Clinton did.

http://www.factcheck.org/askfactcheck/during_the_clinton_administration_was_the_federal.html

Posted by: theorajones1 | June 14, 2010 11:37 AM | Report abuse

I wonder if the deal to be cut isn't with Republicans, but with conservative democrats.
It's the blue doggy democrats who are most vulnerable to deficit fears and a weakened economy. It's not enough to get you to 60 in the Senate, but it puts some teeth into whatever blue dog means.

Posted by: windshouter | June 14, 2010 11:39 AM | Report abuse

Keep beating this drum, Ezra. It's the only way out.

Posted by: neversaylie | June 14, 2010 11:48 AM | Report abuse

There isn't really such a thing as long-term deficit reduction: the concept is nullified by human greed and whim (in liberal-speak, "a well-founded desire for prudent change") and by both real and imagined emergencies.

Savings accounts and the management thereof are a good indicator of fiscal responsibility. For example, how has the Social Security Trust Fund been used? Have any monies been borrowed from it to purchase assets? Such deficit spending on tangible assets -- roads, bridges, infrastructure -- is far less bothersome than deficit spending on recurring expenses.

The borrowing ("deficit spending" in liberal-speak) needed to pay the expenses of Johnson's Medicaid and Welfare Programs is problematic and has been since inception of both programs; however, as noted above, "any cuts might upset the base", so these long-term deficit components will never be corrected. It's a downward spiral... moved even closer to the disaster point by the unsustainable promises made via the PPACA.

Posted by: rmgregory | June 14, 2010 11:50 AM | Report abuse

They also, as Bush demonstrated, won't be deficit hawks any more either. A conservative deficit hawk is only a deficit hawk until he returns to power.

Posted by: pj_camp | June 14, 2010 12:07 PM | Report abuse

theorajones, you're not really wrong, but Clinton did have a once-in-a-generation tech boom that really helped explode economic growth. We're not likely to get something like that to help us grow out of our short term problems this time around, and a single tech boom wouldn't really fix our long-term deficit problems either.

Ezra's right, except that he's perhaps too optimistic. Republicans and deficit hawks *should* be using this as an opportunity to get long-term deficit reduction on the table. The problem, however, is that the Republican party doesn't really have a lot of good ideas for deficit reduction to put on the table, at least none that they're really talking about.

As long as Republicans talk only about spending and not at all about revenue, we're never going to get an agreement on the deficit.

Posted by: MosBen | June 14, 2010 12:13 PM | Report abuse

Kinda like theorajones, I wonder if the deficit hawks actually care so much about the deficit. Complaining about the deficit while you are in the minority gives you a "politically correct" way of complaining about the spending preferences of your opponents. But if you make a deficit-cutting deal with your opponents while they are in the majority, there's a good chance that the cuts that are to kick in a few years down the road will kick in when you have gotten back into the majority yourself. And that means you'll be the sitting duck for public resentment at gov't stinginess. Politically, it's better to force your opponents (if you can) to make cuts while they are in the hot seat. Let them see the wrath of the bacon-less voter.

Posted by: JonathanTE | June 14, 2010 12:57 PM | Report abuse

Anyone who voted for Reagan or the Bushes have no moral right IMO to voice public concerns of the deficit.

Posted by: Lomillialor | June 14, 2010 1:06 PM | Report abuse

@Lom: Reagan turned in balanced budgets, Democrats filled them with pork, Reagan took those deals (arguably, he could have vetoed them repeatedly, but Reagan made an effort at turning in balanced budgets, and Democrats, who did not hold the executive branch, had no trouble working themselves a sweet deal: if Reagan wanted to get most of his agenda, he had to give up on cutting programs and turning in balanced budgets.

Bush spent like a drunken sailor. Dubya, with both houses for much of the time, spent, and helped to craft the Medicare Part D deficit-building boondoggle.

Reagan does not equal Bush in most ways, but on spending especially. Although, I couldn't vote in the age of Reagan, and desperately wanted Mondale to win in 1984. My, how things change.

Posted by: Kevin_Willis | June 14, 2010 1:26 PM | Report abuse

Say what you will about Clinton, he kept the deficit managed, and actually managed to trim a bit off the top (the Tea Taster's Board being a favorite example).

Generally, Democrat administrations (not so much the legislators in the house) haven't been especially crazy in their spending when compared to Republicans. LBJ spent a lot on The Great Society, but did Nixon cut that? No, he added to it, and he added a lot.

Reagan submitted balanced budgets, but didn't veto them with they came back a lot more expensive than he sent them out.

I think there's a good argument for the Republicans being better on certain issues, but controlling the deficit is not one of them. Thus, when they get power back, it's unlikely that they will cut the deficit appreciably.

@theora: "Democrats overwhelmingly practice fiscal responsibility, and Republicans are fiscally profligate."

Until Obama. At this rate, he will outspend W. impressively.

Posted by: Kevin_Willis | June 14, 2010 1:33 PM | Report abuse

Kevin, maybe that's historically correct, but I think you have to recognize that while Reagan may have tried to have balanced budgets, and maybe he cared about the issue, he cared about it less than his other political priorities. If deficit reduction had been his priority, he could have vetoed the budgets, as you said. He may not have been as bad as GWB, but then, who is? That doesn't mean we can't recognize that for all the talk about deficit reduction, Republicans have consistently had other priorities that took precedence.

Posted by: MosBen | June 14, 2010 1:39 PM | Report abuse

Clinton may have understood deficits, but 1993 was 17 years ago and he isn't in the US Senate now (although I'd take him over Blanche Lincoln in a heartbeat). The current Congresspeople do not appear to understand deficit control.

Obama isn't profligate. He was saddled with a huge financial crisis and recession that drastically cut tax revenues at a time stimulus was/is needed to get the economy growing again. And every time he tries to cut defense the Congress puts back in the stuff he cut. And they won't do what is needed to get health care costs under control except shaft the doctors so they will stop treating Medicare patients just when the Boomers are retiring along with Boomers who are doctors.

Obama isn't the problem; the problem is the economy and Congress people who don't understand economics and deficit reduction.

Posted by: Mimikatz | June 14, 2010 1:46 PM | Report abuse

From what I can tell by recent history, the best way to control the size of the deficit is divided government (i.e. one party in control of Congress and the other with the presidency). This is how Clinton and the Republican Congress made progress on balancing the budget and prior to them George H.W. Bush and the Democratic Congress. One party government (by either party) seems driven to excess as party loyalty exceed institutional loyalty now.

If all else fails, let the budget process go down in flames and fund the government by continuing resolution (everything at the prior fiscal years level with maybe some inflation adjustments) for several years.

Posted by: jnc4p | June 14, 2010 2:23 PM | Report abuse

Kevin

Much of Obama's spending is due to entirely to the mismanagement of W. Most of the current deficit (4/5) is directly attributable to W's policies. Most of the remainder (1/5) is due to stimulus to fight the recession caused by W. Obama WISHES he could spend in the ways he would want and the ways Reagan and the Bushes actually did.

Posted by: Lomillialor | June 14, 2010 2:25 PM | Report abuse

It's great to see so many comments about the deficit. Sometimes I think that it's only politicians who actually care (or use the issue for political fodder). Given that we need to still keep the economy moving but also put a plan in place so my generation is not stuck with an unmanageable tab. Not to mention reassure our creditors that we actually understand what our massive debt means. Deficit deals could be a good solution.

Though I'm not sure if it's just the Republicans that have missed an opportunity. It seems to me like Obama has missed one as well. Especially considering all his talk about reaching across the isles, he should be offering more of these deals.

Posted by: wecantpaythattab | June 14, 2010 3:03 PM | Report abuse

kevin

Reagan SIGNED budgets into law. His proposals involved gutting medicare/SS/etc.

He wanted Dems to gut everything they wanted and give Reagan everything he wanted. That's a guaranteed NON-STARTER.

Reagan threw good money away on fictitious soviet threats. Google "CIA team B wiki" to see what I mean.

Posted by: Lomillialor | June 14, 2010 3:11 PM | Report abuse

We should think of the deficit in three acts:

Act 1: the next 3 years.

Act 2: the rest of the decade.

Act 3: 2020 and beyond.

The deficits in Act 3 will be mostly about health care costs.

But in Act 2, they're mostly about the Bush tax cuts, with a nontrivial helping hand from the lingering economic effects of the recession. (See the graph at http://www.cbpp.org/cms/index.cfm?fa=view&id=3036)

So it seems that what Dems need to do for Act 1 is make a deal with themselves: sunset the Bush tax cuts in their entirety, in exchange for spending a metric s***load of money right now to put people back to work quickly and reduce the Act 2 budgetary effects of the recession to near zero.

If we did that, and were eventually able to come home from Iraq and Afghanistan, we'd get the deficit down near zero by the time Obama left office.

Dunno about you, but I could deal with that. I bet most Americans could, too.

Posted by: rt42 | June 14, 2010 3:17 PM | Report abuse

You would think that the obvious place to cut the deficit would be to end our two concurrent land wars in Asia. You would think. Good thing that's on the table, right? Good thing Ezra, Summers, and Dionne mentioned that.

Posted by: stonedone | June 14, 2010 5:29 PM | Report abuse

There was never a real Reagan proposal to balance the budget. The budgets sent to Congress were not in balance, and the proposed deficits were generally larger than what Congress passed.

Any proposed Reagan balanced budget was never allowed near the actual budget process, because the cuts in spending would have ruined the Republican party. I think the Republicans lost the Senate in 1986 because spending cuts were viewed as too draconian.

Posted by: windshouter | June 14, 2010 6:32 PM | Report abuse

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