Shades of grey

Bruce Bartlett
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Posted: May 16, 2006 12:05 AM

One of the problems with our political system today is a tendency to views things as totally good or totally bad, with no middle ground. Among the problems with this perspective is that both positions can be right at different times.
 
There are lots of things in life that are good -- even necessary -- up to a certain point. But once one passes a threshold, they change and become toxic. My favorite example is salt.

A certain amount of salt is necessary for life. People will die if they have no salt in their diet. A bit more is both benign and pleasurable. It's hard to imagine food without any salt at all. But too much salt can create physical problems such as high blood pressure, and a large quantity of salt consumed within a short time will kill you.

Thus, the question of whether salt is good or bad for you is purely one of how much you ingest over a certain time period. It would be stupid to say that salt is entirely a good thing or entirely a bad thing. It just depends.

There are many public policy issues that fall into the same category. One is budget deficits. Up to a point, they are benign. And during a severe recession, they may even be necessary for our economic health. It would be foolhardy indeed to slash spending or raise taxes when a recession causes spending to rise and tax revenues to fall, thus giving rise to deficits. We tried that back in 1932, and it was disastrous.

We could probably run a budget deficit of 1 percent or 2 percent of the gross domestic product every year forever with no ill effects. Certainly, whatever ill effects might exist would be far less than those from raising taxes by the same percentage of GDP -- especially if they were of the soak-the-rich variety.

But once deficits rise above a certain level, they begin to have toxic effects. They raise interest rates and put pressure on the Federal Reserve to run an easier monetary policy, thus giving rise to inflation. They begin to create political pressure for legislative action, which may involve more economically damaging tax increases or spending cuts. They may also paralyze fiscal policy, making it difficult to respond to important public needs.

And above a further level, deficits can be economically devastating because they cause interest on the debt to rise so rapidly that it becomes impossible to raise taxes or cut spending enough to prevent default. Usually when countries reach this point, they simply inflate their way out of their debts, leading to hyperinflation, as we are now witnessing in Zimbabwe.

In short, it is absurd to say, as some Bush administration officials do, that deficits don't matter, and it is equally fallacious to say, as some former Clinton administration officials do, that deficits are always poisonous and that we should strive to run budget surpluses at all times. Of course, by that logic, if a small surplus is good, then a bigger surplus is better. But there are threshold effects there, too. A small surplus may be beneficial, but a large surplus at the wrong time could be deadly.

Another area where people tend to ignore threshold effects is immigration. A certain amount is absolutely necessary to our economic health. There are many foreigners with skills Americans don't have, and we would all be poorer if we had no immigration at all.

Even illegal immigration is benign up to a point. There are jobs the native born won't do -- at least, not without being paid wages that would cripple many businesses and raise costs for things like fruits and vegetables that most people would find intolerable. Indeed, if it led people to consume less fruits and vegetables -- as significantly higher prices certainly would -- it would be bad for their health.

But once a certain threshold is passed, the cost of immigrants starts to rise above their benefits. In a worst-case scenario, they no longer assimilate and become a cancer within the body politic, the way Quebec is in Canada, where the francophone population is deeply alienated from the rest of the country. It would be very bad for the United States if the Spanish-speaking population were to develop in a similar way, isolated from the rest of society, but demanding special privileges and concessions from the English-speaking majority.

Thus the question of whether immigration is good or bad for the country depends crucially on its amount. Like salt, a certain amount is necessary, a little more is benign but too much can be cancerous, culturally and politically.

Keep the question of thresholds in mind whenever someone declares a policy to be absolutely good or absolutely bad. Whatever their position, such extreme statements are probably wrong.