My questions have to do with the impact on our fragile economic recovery of the structure, the focus and timing, of the alternative deficit reduction plans now being debated. Everyone knows that, within limits, fiscal policy can either stimulate or dampen economic behavior and performance--or at least they should know that. The research and empirical evidence are clear. But the state of the economy and timing matters, too--and it can matter a lot.
When the economy is in recession (or worse), increasing government spending for social support or other programs, or reducing taxes, is stimulative to economic growth, within limits. And even though larger, intermediate-term deficits will result, it is still the more effective, less painful course, so long as the increased deficits can be managed back to acceptable levels as the economy grows stronger. (Note that this option is not even available to us with a balanced budget amendment.)
But when the economy is in a nascent or fragile recovery, when it is still weak, if government takes money away from people who would otherwise spend it, either by reducing social support spending or increasing taxes, it has a dampening effect on consumption and economic growth, depending on the size and materiality of the program changes. This is less true, or has a lesser impact, in times of strong economic performance.
So, first question: is our economy now resilient enough to increase taxes or decrease social program benefits without halting the fragile recovery and pressing us back into recession? What are the indicators and measures that guide us? Second question: Do we know or have any guidance on how much to increase or decrease these economically stimulative or dampening fiscal choices even if we are confident about the general direction? And, the third question: Does anyone in the congress or administration elevate such questions (and any available answers they may have) above political and ideological considerations?
The third question is the easiest to answer. In the end, politics rule, or at least play a dominant, mediating role. No, they can't be so irresponsible as to ignore whatever economic knowledge and data point them to the better choices and results, although short-term results always play a disproportionately large role in decision making. In any prior time, I would have said that ideological considerations play a role, but balance, prudence and compromise, fiscal, budgetary and economic responsibility, would rule at the end of the day. Even when the Democrat's left wing were most effective and influential, this was true. But no more. The most conservative Republicans and their Tea Party cousins have elevated ideological purity above all things, even taking pledges to place such considerations above all else. Frightening times.
But still, wouldn't credible, authoritative data make a considerable difference to most everyone? And wouldn't you expect there would be good data and reliable guidance on the implications of these deficit reduction plans, the ridiculous Tea Party plan or the more realistic plans now receiving consideration? Why aren't we hearing and seeing more about that?
You say that the government, the CBO and Fed and others do put out such analysis and information, as do various private economic and market newsletters. Of course, the arcane language, format and implications of these reports are understandable only by the few educated or trained in it. Even then, they are usually the subject of debate and disagreement because the reporting and conclusions reached by them is often internally ambiguous or conflicting, and they often conflict with one another. With all our economic experience and empirical evidence, the last century of accumulated data, the econometric modeling done by the Fed and Congress, by the investment banks and consulting firms, why don't we have more authoritative answers, or at least reasonably strong direction in answering these questions? And if we do, why isn't it part of the public discourse and debate--and presented in simpler, understandable terms to the public?
What tax laws and social programs will be changed and how will that impact different groups of Americans? Is that too much to ask, that the public be reasonably informed, in terms they can understand?
I was comforted when, shortly after the TARP and stimulus programs were effected, Fed Chairman Bernanke made very clear that the larger, intermediate-term problem was the budget deficit. It had to be addressed, and addressed effectively. This was critical. But he cautioned that to move to raise taxes or reduce social programs before the economy strengthened and was convincingly on its way to recovery, would be to drive us back into recession or the depression we had successfully averted through the impact of TARP and the stimulus program.
I trusted Bernanke with his academic expertise on the Great Depression and more recent financial crises, along with his institutional knowledge and experience with the Fed. And I judged him a principled and trustworthy man. The TARP and stimulus programs were easy for me to have confidence in because of the dire circumstances and his role in addressing it all. Credibility. But more recently, on balance, my clear sense has been that the dangers are now greater in failing to address the budget deficits--largely because it appears most credible economists are in that camp (with the exception of Paul Krugman).
When Obama moved aggressively in that direction, I assumed the data, the modeling evidence, and even a great many Dems, supported that direction. But Chairman Bernanke has not spoken to this issue lately, at least not prominently and for impact. That he has not, I've taken as tacit approval for the initiative to start addressing reduction of the budget deficit. I assumed that either Bernanke is advising Obama on this or at least has given no indication of objection. And I assume Obama would have to be convinced given his natural, personal concern for retirement, education, and healthcare programs.
But now, even as the dysfunctional deficit reduction process stumbles embarrassingly forward, revised economic measures and indicators present to us a much weaker recovery than Bernanke had confidently projected. Does he feel that we are still on the right path, or is he merely resigned to the political realities and momentum of deficit reduction? Further, aren''t there now at least more refined question regarding the structure, focus and timing of program cuts, tax increases, or other revenues raised? It appears to me there must be. And even if we hear no legislative rationale of this sort offered, even if the public discussion says little or nothing of it, it must be a factor being analyzed and passed upon by someone of importance to the process, wouldn't you think?
It is on that basis that I find myself accepting the broad contours of Obama's implied approach to deficit reduction.
I do not pass on whether the most intelligent program cuts are being made, but assume they are the most prudent that can be agreed and still protect the programs and people they were meant to serve. Whether its eliminating loopholes and deductions favoring the wealthy, or increasing their tax rates, and whatever the nature of the cuts and the pain involved, the questions I raise involve the impact on the recovery, the likelihood of dampening the recovery and extending the recession. That is my focus. I know that raising rates on high income people now and later reforming the code by removing deductions, reducing the rate structure, and broadening the base would likely be the President's preference, as would social program reform that makes them more cost-efficient and more effective at targeting and providing what is needed for only those truly in need--at least that's what I hope is his preference.
But when I look at what I understand to be the general contours of the best approach available to Obama, it appears to be increasing taxes by closing loopholes on only the very well heeled, both corporate and individual, those with the means to continue to consume, regardless of taxes, and arguably having the least impact on consumption and economic recovery. As to the program cuts, they appear to be scheduled so that they take effect more in future years, which again would appear to produce less of a dampening effect on today's economy.
Am I right to feel that is a good compromise in moving toward significant improvement in the budget deficit, but with limited negative impact in the short-term on a fragile economy? I hope so, but I don't really know enough to be sure. Maybe it isn't yet time for material reductions in social programs or increases in taxes. That's where I was a year or so ago, but have been moved by all the lofty voices and dire warnings moving us in the other direction. Might we be making the mistake of 1937, when anti-stimulative measures created the recession within the depression--in our case, the so-called "double-dip" recession? How is a practical person to find the necessary economic information, the reliable voices of professional wisdom, the balanced political leaders, that offer a principled basis for a position to support?
So, yes, I still have questions--important questions, I think. And I still can't find satisfying answers. And better answers, more authoritative answers could clearly change whether I support one deficit reduction plan over another, how much the timing and targeting of budget changes matter, or whether I believe it is even yet time for deficit reduction.
Of course, by now I understand I am looking to put too fine a point on the analysis and projections that can be produced. They look and sound very sophisticated--and they are--but are still very much the instruments of estimates and general direction, and insufficient for my purposes. In the end, there remain reliable, consistent general principles--to be sure--and a lot of data, but of limited applicability and reliability in defining the structure and timing I'm looking for. In the end, those individuals with the deeper institutional knowledge, the clearer understandings of history, and the more gifted professional intuition will have to guide us. But I wonder if their voices are being heard at all above the din of Right Wing ideological zealotry.
No comments:
Post a Comment