Deficits don't matter

Posted: Mar 05, 2004 12:00 AM

I don't like the federal budget deficit. And I mean that in almost every sense possible. I don't like it because it's bad for the economy, sure. But I really don't like it because it's bad for me. By which I mean it is an astoundingly boring and complicated subject that unfortunately allows people to sound righteous on a subject they don't know much about.

This goes for scores of political journalists who've already programmed their computers with a macro command to insert the words "soaring deficit" or "saddling our children with debt" into almost every sentence about George W. Bush.

I don't pretend to know a great deal about the deficit either. But here's what I do know:

First, it doesn't matter much politically. As Dick Cheney allegedly said, "Reagan proved deficits don't matter." I say "allegedly" because Cheney denies he said it and the only other source is former Treasury Secretary Paul O'Neill's book. But whether Cheney said it or not, it's politically true.

Think of it this way, if the economy is doing great then voters don't care about the deficit. If the economy is doing terrible then people don't care about the deficit - they care about jobs, the stock market, property values, etc. The deficit only really seems to matter as a source of an ill-defined anxiety about the future among the relatively well-to-do who really want something grave to worry about. Too bad we won't have another Y2K issue to occupy them until Y3K.

Now, economically, the deficit does matter, though how much and why it matters is the subject of a debate whose intensity is exceeded only by its dullness.

Still, there are some legitimate concerns. First, mounting deficits cause the federal government to devote more money every year to increasing interest payments. Second, they give foreign governments greater economic influence over our finances because we rely on them to buy our bonds. Third, since Uncle Sam is generally a better credit risk than almost anybody in the private sector, government borrowing steals capital from the private sector.

Now, because they are economists, economists disagree on these points and many others about why deficits matter. One caveat I should offer is that pretty much all economists agree that "cyclical" deficits are OK, while "structural" deficits are the real problem. Going into the red during a recession is necessary and good ("cyclical"), going into permanent, long-term debt is bad ("structural").

In other words, when the economy hits a rocky patch, most experts agree that the government should either cut taxes, increase spending or both in order to stimulate the economy. A personal financial consultant wouldn't object to a truck driver going into temporary debt to get his broken truck fixed, and pretty much all economists, liberals and conservatives alike, don't object to borrowing in order to restart economic growth. Meanwhile, everyone agrees that it would be a bad idea for a truck driver to carry, say, $20,000 in credit card debt from month to month because he will spend an unhealthy share of his resources simply servicing his debt.

If somehow, at this point in the column I could make some balloon animals to get your attention back I would. Since I can't, let me finish up the economics stuff as quickly as possible.

Personally, I think you fix deficits by growing out of them. If the economy grew at 2 percent a year it would double in a generation. If it grew at 6 percent a year, the economy would double in about 12 years. So, let's do everything we can to grow the economy and shrink the relative size of the deficit tumor. What constitutes the best way to grow the economy is a subject for another day.

But enough about economics. What drives me nuts about all of the talk about deficits is how it makes the deficit seem like the disease rather than the symptom. The disease is a metastasizing federal government, the deficit is little more than a fever.

When I listen to liberals and journalists complain about Bush's truly outrageous runaway spending, they make it sound as if runaway spending would be fine if we had a balanced budget.

I don't want a huge federal government because I don't want a huge federal government, not because we're borrowing too much money. Whether or not Sweden has a balanced budget has precisely zero impact on my lack of desire to live there.

There's a long list of reasons why big government is wrong: a big government is inefficient; it saps individual initiative; it imposes Washington's values on a vast nation of free people; it makes us all employees of the state and so on.

I agree that a big deficit belongs on that list, but not anywhere near the top of it.