People Don’t Understand How Deficits Work

Proof today that people just don’t understand the basic Keynesian ideas about deficits. At Roll Call, Nathan Gonzales claims that Obama-era Democrats are “rallying against two of the highest profile accomplishments” of Bill Clinton’s presidency. Timothy Carney:

How extreme have Dems become? GOP adopts 1990s Dem policies, Dems blast them for it

Well, not really.

On one of the two issues Gonzales raises — DOMA — is certainly a large flip for most Democrats. I wouldn’t call it a Clinton “high profile accomplishment,” but no question about it: calling the Democrats “extreme” on LGBT issues in 2013 compared with where they were in the 1990s is a fair call. Of course, that also would require calling over half the nation “extreme,” but it’s a big change, no question.

But the other one? No way. Gonzales raps Democrats for celebrating a balanced budget in the 1990s while running deficits in the current decade. He’s sort of dimly aware of a justification:

Of course, Democrats will point to a difference in the state of the economy from the mid-1990s to today, but that doesn’t completely explain the marked change in philosophy when it comes to a balanced budget.

That’s totally wrong; there’s no “philosophy” change here at all! Basic Keynesianism says: run deficits during hard times, and then balance the budget (or run surpluses) during good times. Okay, it’s a bit more complicated; given the very particular circumstances of 1993-1994, Team Clinton was convinced that medium-term deficit reduction was good for short-term growth (although they also pushed a stimulus package in 1993 that was killed by filibuster). At any rate, while they certainly did and do brag about the Clinton balanced budgets, there was never a “philosophy” of balanced budgets.

The actual principle? It’s even simpler than “deficits during recession, balance during booms.” It’s: deficits are a tool of economic policy. That’s all. There’s no inherent correct level for budget deficits, and there’s nothing particularly good or bad, in the abstract, about deficits; it’s all about how fiscal policy affects the larger economy.

And Democratic have pretty much stuck with that from the 1930s, certainly from the 1940s, to now. They’ve made mistakes, certainly, along the way, and every once in a while they’ll give in to the rhetoric of deficits fetishists, but there’s zero change of philosophy that I can see.

[Cross-posted at A plain blog about politics]

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Jonathan Bernstein

Jonathan Bernstein is a political scientist who writes about American politics, especially the presidency, Congress, parties, and elections.