On deficit doves

It appears that the senate has rejected Obama's proposed deficit panel. While I'm quite frankly not informed enough about this particular proposal to make any judgments, I do think it's time I dedicate a few words to the deficit hysteria that has swept the nation.

For the sake of brevity I don't want to write about the lead up to the financial crisis and what could have been done differently. I wouldn't say I've completely swallowed the Keynesian pill, but ignoring the economic policies allowed the bust to happen, our solutions were limited to letting government spending make up for private shortfalls or to do nothing and let the economy pick itself up by the boot straps over an arduously long period of time.

If your brother needed money for knee surgery, and you had a comfortable credit line that allowed you to borrow a few thousand dollars to help him out, wouldn't you take on some debt to help out? Sure he should have saved and planned ahead incase something like this happened, but given that he didn't you can either loan him money and lecture him later, or you can let him slowly recover. The latter might be better for his future integrity and to teach him a lesson, but it won't help out the other family members who rely on his being able to go to work.

Yet, the government had been carrying a balance on that proverbial credit card for many years. Even thought it makes sense to borrow in order to save the economy during a bust, the elephant in the room is asking the question: why on earth we weren't paying down debt during the boom years?

Counting myself as a relative fiscal conservative, I find it abhorrent that during the most prosperous and profitable years in known economic history, our government was still adding to its cumulative debt burden by running a yearly deficit for the entire duration of the Bush administration. I'll try to refrain from being too political here, but amidst cries about our country heading to a socialist dystopia under the Obama administration, it's at least worth noting that prior republican administration far outspent the Clinton administration which had several years of budget surplus (*gasp*) in the mid 90's.

As the current administration clearly adds to the debt burden with what will hopefully be short term economic crutches to get its brother the economy back on track, its worth asking the question to deficit doves: when exactly will we be able to worry about the debt? When the economy is growing healthily, the US is like an individual who gets a hefty raise every year, so every year he decides to carry a higher balance from month to month on his credit card to keep up with his increasingly expensive tastes. Rather than look at the credit card balance, its far more indicative to look at it interms of income and that is what debt to GDP ratio is for the government. I don't see any inherent problem in our gross level of debt rising as long as we can come to a consensus on exactly what levels of debt/GDP would be problematic.

I don't think we're at that point yet, and most mainstream economists don't either, but public choice economists will also be the first to tell you that unless we set that standard before we hit it, no government will ever admit that we are there.

You absolutely can not have your cake and eat it to, even though all politicians will try to tell you that you can. We can not fund national healthcare without adding to the deficit, it's adding another expenditure without a proportionate income. I'm okay with making this choice, but lets not delude ourselves into thinking that the government budget is anything other than revenue in the form of taxes plus expenditures in the form of social programs, wars, infrastructure, etc.

If we make the choice to care about the deficit, someone has to pay for it. Once unemploment drops back to around 9% and we can safely say our economy is back on track, someone should start paying. Even if it only lasts for a few years, we need to prove that this country has the political will and ability to pay down debt and run a surplus in the good times. That knowledge can go a long way in sending the right signals to the global marketplace about the health of the american government, economy, and dream.