February 25, 2016
It must be tough for flat earth believers; people insist on rejecting their views on the shape of the earth based on evidence. Robert Samuelson seems to be in the same situation. He used his column to complain about economists not caring about balanced budgets, just because there is no evidence that they should.
The immediate provocation for this diatribe is Doug Elmendorf, the former head of the Congressional Budget Office. Elmendorf used to be a big advocate of smaller deficits, but he now is arguing that Congress take advantage of near record low interest rates to undertake a major infrastructure initiative.
Samuelson concluded his piece:
“Destroyed is the pre-1960s consensus: a crude allegiance to a balanced budget. Since 1961, the government has run annual deficits in all but five years. Allowing for desirable deficits when the economy is well below capacity or when there’s a national emergency, we need to go back to the future. Before making vast new commitments — a la Elmendorf — we should balance the ones we already have.”
Ah yes, the country is being destroyed by deficits. That is why the government has to pay almost 2.0 percent to borrow long-term. And the interest on our horrible debt costs us almost 0.8 percent of GDP in annual interest payments. Sound pretty awful? Interest cost us more than 3.0 percent of GDP back in the early 1990s.
It is amazing that people like Samuelson, and more importantly our politicians in Washington, continue to try to run the government based on nostrums they learned from their parents rather than the real world. Elmendorf changed his view on economic priorities based on evidence.
There is a clear story of how excessive deficits can hurt the economy. They drive up interest rates if the Fed does not accommodate them and they lead to inflation if the Fed does. The rationale is simple: excess deficits cause us to push the economy too hard. They lead to too much demand given the economy’s ability to produce goods and services.
We clearly are not seeing this constraint. There are still millions of unemployed or underemployed workers who would like full-time jobs. This means that the concern about balanced budgets is needlessly keeping these people unemployed. And the weakness of the labor market is keeping tens of millions of workers from having the bargaining power necessary to get their share of the benefits from economic growth in higher wages.
Perhaps even worse, the obsession with deficits prevents us from doing things we really need to do. The neglected items form a long list, from early childhood education and affordable college to keeping the kids in Flint from being poisoned.
But hey, why look at the real world when we have the words of wisdom on balanced budgets that Robert Samuelson learned from his parents.
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