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Handicapping the deficit under divided government, cont'd

John Sides tracks down a political science paper testing the effect of divided government on state deficits from 1968 to 1987. The answer? It made it worse, because the parties had more difficulty coordinating on unpopular choices and voters were more confused about who to blame.

This conflicts with our intuition a bit, as divided government brought federal deficits down in the 90s, but perhaps there's something different about national politics, or perhaps the era's economic boom simply made fiscal contraction easier because people didn't feel it amidst an economic expansion.

By Ezra Klein  | October 27, 2010; 10:46 AM ET
 
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On the other hand, the entire Reagan-Bush'41 era was also divided government and it ushered in the modern system of large deficits. It's dangerous to think of 1995-2000 as representative.

Incidentally, I remember a study going around a few years that talked about how tax cuts were correlated with increased spending -- while tax increases were3 associated with a slower rate of spending growth (I don't dare say cuts, but who knows?) Anyway know the study or have a link?


Posted by: Hopeful9 | October 27, 2010 11:13 AM | Report abuse

"...and voters were more confused about who to blame"

May be that is the game plan of these 2 political parties - collude between them to avoid blame to anyone and continue to share the spoils between 2 of them. One more reason why the game is rigged for any third party.

But obviously until we Americans realize that it is in our interest to vote one party or the other; this gridlock business is here to stay. Market likes it and may be Market is the catalyst to establish this duopoly.

However who knows, GOP tidal wave next week may be the first step in the direction of resolution, culminating in GOP owning both Congress and WH come 2012.

Posted by: umesh409 | October 27, 2010 11:16 AM | Report abuse

I find the nostalgia over 1995-2001 to be completely bizarre. The Clinton/Gingrich tandem had nothing to do with the deficit evaporating. That had to do with the '90s tech boom and the '93 and '90 budget deals. The 1997 "Balanced Budget Act" did nothing of the sort - most economic analyses said it did virtually nothing and some suggest it may actually have made the fiscal position slightly worse.

Seriously: what was so productive about the 1995-2001 period? We got the dubious Telecommunications Act and deregulation of the financial industry. Along with impeachment of a sitting president over dubious, politicized charges. As for welfare reform? We'd probably have gotten welfare reform even with continued Democratic rule.

Seriously - the 1990s were an enormous lost opportunity - fantastic economic growth, yet no action on global warming, little investment in infrastructure, and very few efforts to tackle long-term problems.

If we're going to get all nostalgic about bipartisanship, then the bipartisan deal to extol was the 1990 budget deal between Bush the Elder and the Democratic Congress. But there's little reason to extol the 1995-2001 period.

Posted by: Isa8686 | October 27, 2010 11:42 AM | Report abuse

One thing to add to Isa8686's remarks on balanced budgets in the 1990s is the 1993 deficit reduction moves by Pres. Clinton and the Democrats in congress. Remember that V.P. Al Gore had to break a 50-50 tie in the Senate to get the package through against 100% Republican opposition. Gingrich et. al. predicted economic disaster, Dem's took the political hit, but balanced budgets were achieved. Then G. W. Bush blew it all away... Not securing the long term budget at something near balance was a huge lost opportunity.

Posted by: bobgeo | October 27, 2010 11:50 AM | Report abuse

"divided government brought federal deficits down in the 90s"

BILL CLINTON brought federal deficits down in the 90's. The first President Bush, to his credit, also attempted to deal with the deficit and ticked it down a bit, though he was really stymied by a poor economy. Reagan, presiding over divided government in the 80's, drove UP the deficit in an unprecedented manner (and tried to pull it back a bit at the end, but fundamentally had little commitment to the task).

A "Divided" vs a "Unified" Congress has nothing to do with this. It's not supported by history, and it makes no theoretical sense. If I need to buy votes from the other party, the thing that's going to move the marginal member is spending cuts OR tax hikes? As opposed to pork in their district? Seriously?

The presidential bully pulpit, budget-setting power and his veto drive the broad questions of whether we'll be fiscally responsible or not.

More than that, it's very clear that the Democratic party's mainstream position is to reduce the deficit, while Republicans' mainstream position is to ignore the deficit. All major Democratic legislation (health care reform, cap and trade, etc)--except the extraordinary stimulus measures--has been deficit neutral or reducing. All major Republican legislation (wars, tax cuts, medicare drug bill) has been deficit increasing.

I'm sort of mystified as to why so many DC commentators are confused about this. Republicans don't care about fixing the deficit. Democrats do, and they make a LOT of hard choices to do it.

Posted by: theorajones1 | October 27, 2010 12:03 PM | Report abuse

More than that, it's very clear that the Democratic party's mainstream position is to reduce the deficit, while Republicans' mainstream position is to ignore the deficit. All major Democratic legislation (health care reform, cap and trade, etc)--except the extraordinary stimulus measures--has been deficit neutral or reducing. All major Republican legislation (wars, tax cuts, medicare drug bill) has been deficit increasing.

Well yeah, if you don't count the stuff that hikes the deficit, you get only stuff that doesn't hike it.

You missed the big one. Medicaid.

Posted by: krazen1211 | October 27, 2010 1:02 PM | Report abuse

In any case, closing the deficit significantly is very very easy.

All they have to do is write a 1 page law taking the PPACA's gross unjustified welfare subsidies and change them all to 0.

Posted by: krazen1211 | October 27, 2010 1:12 PM | Report abuse

or perhaps the era's economic boom simply made fiscal contraction easier because people didn't feel it amidst an economic expansion.

We have a winner! Deficit reduction is always easier (in fact, I might say possible) in an expansion. We have very little in the way of expansion going on so it's going to be make it much more difficult.

I'm with theorajones and umesh409 too: But obviously until we Americans realize that it is in our interest to vote one party or the other; this gridlock business is here to stay. Market likes it and may be Market is the catalyst to establish this duopoly.

Even in the presence of market pressure though, I don't see how we get the votes to cut spending, especially given the Republican platform.

max
['Unless Obama caves, of course.']

Posted by: theinfinitiveofgo | October 27, 2010 1:36 PM | Report abuse

To quote Brad Delong.....

the swing in the federal budget from a deficit of 4.7% in 1992 to a surplus of 2.4% in 2000--a swing of 7.1 percentage points--approximately 2.0% is due to a booming economy, an extra 1.0% to the high value of capital gains taxes paid in 2000 because of the high value of the stock market, 3.0% to the effects of the Clinton 1993 deficit-reduction package, and 1.0% to the effects of the 1990 Bush-Mitchell-Foley deficit reduction package. At most 1/3 of the extra revenues from a booming economy can be attributed to the bubble.

http://delong.typepad.com/sdj/2005/08/fiscal_policy_t.html

Posted by: ftkyte | October 27, 2010 4:40 PM | Report abuse

"This conflicts with our intuition a bit, as divided government brought federal deficits down in the 90s"

Again, it wasn't divided government creating bipartisanship that did it -- Every single Republican in both houses of congress -- 100%! -- voted against Clinton's, Deficit Reduction Act of 1993. There was absolutely zero bipartisanship.

It wasn't divided government that got it passed, it was that the filibuster didn't apply. Ending the filibuster is what really gets things done. And, it was that the leader of the Democratic Party, was very determined to lower the deficit long term and so he pushed for permanent, not temporary, tax increases predominantly on the wealthy. The Republicans said it would destroy the country, but, of course, instead it led to the longest economic boom in US history and turned record deficits into record surpluses in just a few years.

Sources: http://en.wikipedia.org/wiki/Omnibus_Budget_Reconciliation_Act_of_1993

Posted by: RichardHSerlin | October 27, 2010 9:10 PM | Report abuse

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