The deficit debate

Do deficits matter? It’s a legitimate question, fully debatable, now more than ever. It’s more easily answered in political than economic terms.

Let’s begin with the easy—politically.

Deficits matter to Republicans when they’re out of office, but not when they’re in.

Out of office, they use the threat of rising deficits to assail big-spending liberals and argue for cuts in social spending for poor people, for whom they tend to lack respect.

The latest Republican idea is not to send poor people food stamps with which to get their own food, but to send them boxes of groceries.

It treats all poor people as panhandlers. It’s an individual mandate from the government: Here’s your spaghetti. Shut up and eat it.

—————— When a Democrat was president, House Speaker Paul Ryan warned that deficits would turn the United States into Greece. But now, when no Democrat is president, Ryan is happily accepting near-doubling deficits.

Ryan embraces a president in Donald Trump who once called himself “the king of debt.” That president has now submitted a 10-year budget plan that would send next year’s deficit soaring by more than 80 percent, by prevailing estimate, back to north of a trillion dollars.

It would do that by the simply obvious, by taking in less and putting out more. There would be less intake because of a large tax cut. There would be more output for the military and infrastructure.

That’s basic Reaganomics, arithmetic turned on its head, which Republicans still profess to regard as virtuous.

Republicans manage to present Democrats as the true culprits who won’t let them cut spending on poor people as much as they’d like.

Democrats, for their less-strategic part, act as if deficits matter whether they are in office or out. Their presidents tend to get deficits down and assert good performance because of that.

Bill Clinton produced a surplus. Barack Obama ran the deficit up to $1.4 trillion at the start with essential stimulus, then got it down nearly to $400 billion before he left office.

No one much cared. Clinton’s vice president got beat, as did Obama’s logical successor. Well, in the electoral college, that is. Both Al Gore and Hillary Clinton got more votes from … you know … Americans.

Republicans didn’t talk about Obama’s deficit coming down. They talked about the debt going up. You see, the debt will go up if we are piling on it an operating deficit, even an operating deficit going down year to year.

It’s the same branding cynicism by which an inheritance tax became a death tax. Reducing deficits has never done nearly as much for Democrats politically as cutting taxes has done for Republicans.

Now to the hard part—to whether deficits matter economically.

Years ago, I was on a radio show with a college professor—sociology, not economics, let me hasten to say— who said my deficit worries were silly because international economics is not about hard currency, but relationships.

If China makes things and we buy them—and if we need money and China lends it as a solid investment because it needs for us to have the money and enjoys the earnings from lending it—then everything is in actual balance. Never mind the notion of dollars. Or so the professor said.

Dick Cheney said deficits don’t matter—that Reagan proved it.

As a candidate for president, Trump said deficits didn’t matter because we print our own money, as much as we need, and we can always pay creditors less than what we owe because it’s better for them than nothing.

Responding to that, a big Wall Street banker said, yeah, that’s true, and that’s what we do sometimes, but, gosh, we don’t need to be talking publicly about it.

There seems to be growing agreement that the simple existence of a budget deficit, regardless of size, is not a problem if the economy is percolating well—that, in fact, a deficit can be the very foundation of a well-performing economy.

But there persists the nagging notion—even today, in this supposed era of relationships over hard currency—that a deficit can get so high as a percentage of the gross domestic product that it will cause inflation and high interest rates that stifle economic activity.

The late Dale Bumpers used to say he took comfort in knowing the United States could always erase its deficit with a simple national sales tax, if it came to that.

But I wonder: Does it matter how high that sales tax would need to be?

The best conclusion for the moment is that deficits don’t matter if managed during economic growth, but they matter if out of control and contributing to economic constriction.

The key, then, is the calibration. Where is that magic balance?

The peril is that relationships are harder to measure than dollars.