Playing games with the deficit

“To the extent that Washington is "broken" (and I’d argue it’s less broken than some suggest) it’s because it suffers from being, unusually, both fat and musclebound. No wonder it finds it difficult to move or, once underway, to change direction.

I don’t really see how it can be any other way. Not when you try and govern 300m people in a quasi-modern democracy. A new agenda of competitive federalism might be the best bet (conveniently it also accords with my own philosophical prejudices!) but getting from here to there will be difficult, not least because there’s precious little evidence that either party has the wisdom to agree with me. Or, you will find, with you either.” ~ Alex Massie

This comes after Alex – with the stroke of a digital pen – solves the U.S. deficit problem. You can, too, by playing this NYT’s deficit-destroying game (I played and ended up with a ridiculous surplus, cutting virtually everything I could find, tossing in some magical thinking, and bumping up taxes to boot). Indeed, one could quite easily balance the budget and turn deficits into surpluses if they were so inclined and had dictatorial powers. Alas, such is not the case in a representative democracy. I can hear Tom Friedman pining now for the beneficent totalitarianism of the Chinese ruling class. Yes, if only we were more like the Chinese we could cut our deficit down to size and save the planet. If only.

David Leonhardt, on the other hand, proposes something slightly more sensible: economic growth as deficit slayer. Increased productivity and economic growth will have serious long-term positive effects on the deficit. It’s not a magic bullet, but then again nothing is. The particulars of Leonhardt’s proposal are certainly up for debate, of course – when it comes to economic growth there are serious divisions between members of various political camps on which policies will have the best (and worst) outcomes.

I favor direct stimulus now (payroll tax holiday, checks in the mail, etc.) and long-term, phased in austerity alongside a massive simplification of the tax code. Sweeping cuts during a deep recession are hard to sustain; not fixing our healthcare and pension system, and kicking our fiscal problems down the line ad infinitum is also not an option (though we are likely to exercise it none the less).

I like Massie’s competitive federalism idea, too, though his concerns are well placed: getting from here to there is indeed the hard part. Perhaps the impossible part.

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9 thoughts on “Playing games with the deficit

  1. On the other hand, that NY Times game does pretty effectively make the point that there are really 3 options for dealing with the deficit: (1) Make changes to health care, Medicare, and Social Security; (2) Eliminate all government programs that are NOT Medicare or Social Security AND jack up taxes; or (3) Close your eyes and hope the bad man goes away.

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  2. Indeed, one could quite easily balance the budget and turn deficits into surpluses if they were so inclined and had dictatorial powers. Alas, such is not the case in a representative democracy.

    Elective dictatorship is possible. Parliamentary democracies, especially with first past the post systems – Britain – more often than not yield strong governments that get their programs through. Strong government exists alongside a whole series of conventions that restrain the power of the executive in the UK (the Salisbury Convention, collective responsibility). One need not resort to Friedmanesque praise of China in order to envisage government that honors the values of representative democracy and proceeds according to a coherent program as opposed to American muddling through.

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  3. I dunno, I didn’t find raising taxes up to Clintonian levels to be “jacking up taxes”, myself. I also didn’t feel particularly bad about raising the retirement age to qualify for Social Security, given that the life expectancy has gone up. But that’s just me.

    I had a budget surplus by 2015, at which point I’d probably start thinking about cutting some of the taxes that I hiked up.

    E.D., I’m not convinced that economic growth is going to get us out of this mess. We had economic growth in the 90s, yes, but it seems to me that even prior to the S&L crisis we’ve gone through a cycle of spastic growth followed by balloons popping. Reagan’s defense spending, S&L bailout, junk bonds, dot com boom, housing bubble. Seems to me that our economy has gone from an agrarian economy to an industrial economy to a service economy to a value-adding economy, and now all of our post WW-II advantages are finally worn away and all of the other economic engines out there are grinding away at the ability of the U.S. to have a differentiated market for everything other than health advances… and we’re only on top there because we’re subsidizing it so heavily.

    Anything you can grow, build, make, or support you can grow, build, make, or support somewhere else for less capital (and it’s not just because of the regulatory environment). Labor’s just cheaper elsewhere, and will be for the foreseeable future.

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  4. The problem with Leonhardt’s proposal is that economic growth is very poorly understood. There’s simply no known policy to increase economic growth. Besides which, at the rate the US is spending (and at the rate the rate of spending is increasing), nothing short of the Singularity would be enough to save you.

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    • Well, yes and no. Under a benign policy regime, we really don’t know what the potential for growth to be, as that depends on the people’s imagination in developing goods and services that satisfy real human wants and needs (and how fast such visions can be realized). But we do know that Demo’s and other folk Marxists can kill the possibility of economic growth, whatever its potential would otherwise be.

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      • It’s certainly easier to retard growth than to promote it, but along the margin of policies that could be implemented in the US, there’s little that would affect growth to a meaningful extent. That’s not to say all policies are equally good, far from it, it’s just that the effect on GDP is not a particularly useful criterion.

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  5. Will a payroll tax holiday or “checks in the mail” boost the economy? Except at the margins, I mean? Or will it boost the debt and stimulate the Chinese economy?

    I’m serious about this question. I’m concerned we may have painted ourselves into a corner. Our economy is overly dependent on retail and housing. We can’t reinflate the bubble.

    Boosting healthcare spending or government payrolls won’t boost the economy, either. That will just suck more wind out of our sails.

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  6. I think something like this should be sent to every registered voter, with links to all bills & proposals (not just the quick blurb). Have everyone make the choices to cut or tax until there is a surplus, then submit it. Any submission that misses the mark is ignored. Then tally up how many choose what and the top choices get enacted until the government is solvent again. Make the results public.

    This would do two things. First, it would give political cover to politicians making tough choices (the people have spoken, after all), and second, it would expose favoritism (if, say, a majority wanted the retirement age raised, or the military cut, and that didn’t happen).

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