In our view, the sharpest commentary about the debates among Democratic Presidential candidates came in two short tweets from Bill Hoagland, longtime Senate staffer and current Senior Vice President of the Bipartisan Policy Center.
After the first of the two debates, Hoagland tweeted: “The words debt or deficits never occurred once….” After the second, he wrote: “…debate and debt mentioned only in context of student loans. 4 hours of discussion and words ‘federal debt or deficits’ never uttered.”
Given that the Congressional Budget Office projects that the federal debt will be larger than the size of our economy within a decade, and that the U.S. budget deficit in the first eight months of this fiscal year was 39 percent higher than the same period the previous fiscal year, Hoagland’s observations led us to wonder about the absence of the issue from the debates.
One reason, perhaps, is that the people on stage all have the aim of defeating Donald Trump in 2020. Naturally, then, they pushed back against Mr. Trump’s priorities, such as curtailing illegal immigration. Thus, while the President wants to build a wall, the Democratic candidates want to open the borders ever wider. The point is contrast, of course, the starker the better.
There is no dialectic about fiscal policy. Mr. Trump has had little to say about the debt. He has been a zealous supporter of tax cuts, he has called for increases in defense spending, and he has argued against moderating the growth of entitlement programs despite the $125 trillion of unfunded obligations already on the books.
Many find merit in these policies and that’s fine. We try not to be hypocritical ourselves: ABC welcomed cuts in business taxation (although we wanted them paid for). The point is, taken together, Mr. Trump’s ideas are not exactly those of a deficit hawk.
The Democratic candidates therefore have no reason to counter his views. In fact, they are following suit with calls for costly programs to eliminate student debt or providing Medicare for all. They have shown little concern about how these and other initiatives would be financed other than by piling on new debt. Is President Trump in a position to complain?
The marginalization of fiscal policy did not start with Donald Trump or his Democratic counterparts. Ever since Gramm-Rudman-Hollings (remember that?) budget hawks have endeavored to find workable political solutions to the growing deficit and debt problems. Nothing stuck (remember Simpson-Bowles?). Today the Congressional budget process itself is in shambles. It is a shameful situation.
Against this indifference about fiscal policy, deficit hawks warn about the catastrophic economic effects of continued neglect. What happens if interest rates spike? What happens to the dollar? What happens if countries, notably China, that have enabled our profligacy decide to stop? What happens when our children and grandchildren are handed the bill for the debt we have so relentlessly incurred?
All good questions. The problem is that these warnings, sounded repeatedly for years, never seem to happen or else seem so far away as to be irrelevant. Currently, our growth is strong, unemployment is down, and interest rates are competitive. So what’s the problem?
In a justly famous 1989 essay entitled Of Wolves, Termites, and Pussycats, Or, Why We Should Worry About the Budget Deficit, the late Charles Schultze, an economist at Brookings, took a stab at explaining the lack of “political consensus needed to deal decisively with the immense federal budget deficit.” He concluded that deficits, assuming “competent management” by a Federal Reserve with “the will and the political freedom to do the unpleasant things,” could prevent an “explosive” crisis – what he called “the wolf at the door.”
But that did not mean deficits were harmless pussycats. Unaddressed, deficits, like termites silently chewing away on a home’s foundation, “will slowly and almost imperceptibly but inexorably depress the potential growth of American living standards.”
Imperceptible but inexorable processes do not make headlines. Hence the tendency of deficit hawks, including, on occasion, ABC, to embrace the “wolf at the door” scenario. It hasn’t worked. The termites just keep getting fatter.
What to do? At a minimum we must insist on the continuing independence of the Federal Reserve and demand that new members of the Fed board possess credentials and experience commensurate with that body’s importance for our economic health. Politicians may not understand that an independent, competent Fed is in their interest, but it is. Someone has to be the designated driver.
More important, it is time for all concerned about the deficit and debt to recognize that they are an interest group, not the conscience of America. Their views are not self-evident to most Americans and are barely given more than lip service in Washington.
If we want to build a consensus to “deal decisively” with our fiscal problems, we need to think about doing what others do: find the candidates who agree with us and support them, generously. Some will be uncomfortable with this idea but as long as our representative democracy works the way it does, this is probably the only way forward. Unless we decide to wait for the wolf.