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Cutting the Debt — Is Anyone Ready for a Real Conversation?

By Taylor Marvin

Both these graphics have been making the rounds through the internet for a while now but they’re both interesting enough to merit a second look.

The United States is currently running an enormous budget deficit, close to one and a quarter trillion dollars. However, it’s worth noting just how much of this budget shortfall is due to the recession. Out of a $1.2 trillion deficit, nearly $500 billion is the direct result of recession effects like reduced tax revenue and the automatically rising costs of increasing social safety-net spending. These costs are compounded by the government’s voluntary response to the crisis: the TARP bailout program signed by President Bush and the $150 billion of stimulus spending under President Obama. These are not insignificant costs; the increase in government spending sparked by the recession adds a vast amount to our already enormous debt. Distress over the size of the deficit is a valid and important concern. However, it is worth remembering how tied deficit spending is to theĀ business cycle. In recessions government deficits will increase through both reductions in revenue and necessary economic stimulus. We shouldn’t ignore the importance of leader’s choices on the deficit — President Clinton’s surplus was an important achievement, and Bush signed both massive tax cuts and the Medicare Part D expansion without even pretending to specify how they would be paid for. The state of the debt is vitally important but we shouldn’t let concern over the deficit distract us from fighting a recession America hasn’t recovered from. Deficit spending is really the only tool we have left to boost demand and create jobs. During normal economic conditions the government should live keep spending in line with tax revenue and gradually reduce the debt. But in a recession cutting government spending for fear of increasing what is a still controllable debt (while America’s debt is far and away the world’s largest, it isn’t extraordinary among rich countries) probably isn’t wise. After Bush-era policies, the biggest draw on America’s deficit is the direct cost of the recession. If the US risks a longer downturn by reigning in immediate public spending we could paradoxically end up further increasing the debt.

Source: Center on Budget and Policy Priorities.

Source: Center on Budget and Policy Priorities.

Here’s the core problem of combating the deficit –– even though the vast bulk of the current deficit is the result of a few specific policy choices the American political systems simply isn’t designed to address the collective action problem of cutting spending. It’s been said before but bears repeating: while the costs of an increasing deficit are spread across the entire population the specific programs it funds are someone’s income. If government spending pays your salary or provides for your prescription drugs you have an enormous incentive to preserve that spending; for the larger tax base that funds these program the incentive to cut government spending is much less because the costs are so diluted. That’s why so few politicians ever talk about the specific spending cuts necessary to balance the budget — while vague talk about the importance of living in within our national means is popular actually addressing the austerity necessary to cut the deficit is guaranteed to alienate voters with a huge incentive to keep you out of power. This flaw is endemic to all democracies, especially one like ours that gives enormous power to specific regional constituencies. That’s why it’s been so hard to even begin to address government spending. Cutting defense spending is integral to any plan to reduce the deficit: at nearly 20% of government spending the military budget is simply to big to isolate from wider cuts. Yet despite popular support for a leaner government Secretary Gates has encountered enormous opposition for specific cuts from both Democratic and Republican congress members whose constituencies the cuts target. The incentive to continually grow government spending won’t go away — even if people’s jobs aren’t specifically created by government funds people like federal programs for the benefits they provide. Of course federal spending that benefits politically marginal groups is much more vulnerable, as the cuts to federal low income nutrition assistance programs attest. When it comes down to it the large programs that make up the majority of the federal budget and nearly politically invulnerable to cuts. The government won’t fund programs that aren’t popular; Americans will find it hard to accept the higher taxes and reduced entitlement benefits and public sector jobs cutting the debt really entails. Entitlement programs are popular and a growing portion of the US budget — they won’t go away easily. Just because fiscal austerity is the popular political cause of the day doesn’t mean there’s any real appetite for actually cutting spending — and there’s no reason this universal fact of democracy will really ever change.

One Comment Post a comment
  1. Very nice post. We have lived a certain way and the sense of entitlement that you speak of is heard to correct once it exists. If the deficit is to be reduced then these policies of entitlement must be removed, and unfortunately each policy targets a demographic sector of the population. Then it becomes a political struggle of who is going to lobby and defend their “toy” or kickback harder, its like we have not grown up but transferred our selfishness into grander things.

    I wish there was a way to remove some of these policies fairly and justly, but it seems impossible. The politicians do not want to touch this issue because they will lose support and not get elected…so it is a catch-22 of the grandest proportions.

    October 18, 2010

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