Monday, January 11, 2010

Timmy, Please

Minnesota Governor Tim Pawlenty, widely viewed as a rising GOP star, has a plan for getting the budget back into balance:
Balancing the budget will require some tough decisions. Congress must reduce discretionary spending in real terms, with exceptions for key programs such as military, veterans, and public safety. The Congress must also reject costly new spending initiatives, like new health care entitlements.

There is, alas, a problem:
Someone needs to tell Pawlenty that discretionary spending except for "military, veterans, and public safety" is less than $400 billion a year. A real reduction of, say 10 percent (a ridiculous amount but use it for simplicity sake) would save a little more than $40 billion from the baseline and that doesn't come close to doing what needs to be done.

Finish us off, Matt Yglesias:
If I were planning on running for election, I might not be comfortable saying “to deal with the long-term federal budget deficit we need higher taxes and we need to slow the growth of Medicare spending.” But if you’re not willing to say “we need higher taxes and we need to slow the growth of Medicare spending” then you shouldn’t run around talking about the long-term federal budget deficit. There’s really nothing else to say about it.

Fictive Republican budget hawkery strikes again!


Transplanted Lawyer said...

Taxes, Medicare and Social Security. FIFY.

Grant said...

Tim Pawlenty is real friendly to my dad when they run into each other walking their dogs in my neighborhood. To my lights, that's the main thing the dude has going for him.

Joe said...

Fictive budget hawkery. Sounds like Obama...

other joe said...

If everyone's a fictive budget hawk then everyone's also a socialist, to use a word that's recently re-entered political discourse.

N. Friedman said...

I think that Matt Yglesias is a bit confused. Pawlenty was not speaking about a long-term federal budget deficit. He was speaking about dealing with the national debt by bringing deficits in line.

In fact, the phrase "long-term federal budget deficit" is not a very useful, economically speaking. It confuses deficits with debt. Try googling "long term federal budget deficit" "by paul krugman" or "long-term federal budget deficit" "by paul krugman". Nothing comes up. Which is to say, it is not a term that a Nobel prize winning economist has ever used in any print version The New York Times OP-ED column accessible on the Internet.

Yglesias should have been speaking about the national debt, which is, to some degree but not exclusively, a function of deficits in annual budgets.

So, on Pawlenty' version of reality - arguably a fantasy -, the issue is to balance the annual budget at some point so that the national debt remains manageable and will, with improvements in the size of the economy, become a smaller percentage of the economy - which is another way of saying that the rise in the economy's size shrinks the debt in relative terms. That, after all, was the Clinton approach, back in the early 1990's. The problem is that we face a different problem, one that requires increasing deficits.

In any event, this is all backwards. The problem is not running deficits in any given year. The problem, just now, is to inject sufficient cash into the system so that it does not function, to borrow Paul Krugman style imagery, like a malfunctioning babysitter pool, as described in one of his books, where no one can hire a babysitter. And, to solve the problem that exists without running deficits is to misdiagnose the problem - with cash having been removed, in effect, from the system by the shadow banking system that collapsed and the housing market that collapsed.