During the Bush presidency, Democrats hammered Republicans for their big-spending ways on Medicare, two wars, education, and other areas of the budget. Of course, once they took power, multiple stimuli, Obamacare, and Dodd-Frank passed in relatively short order.
Starting in mid-2010, many Democrats joined Republicans in calling for smaller deficits. Now, however, Politico reports that this trend is changing yet again:
And then there are the other Democrats — the ones who reject the entire premise of the current high-stakes fiscal fight. There’s no short-term deficit problem, they say, and there isn’t even an urgent debt crisis that requires immediate attention. This group could make it even harder for President Barack Obama to strike a grand bargain because they increasingly see no immediate need for either new spending cuts or significantly more revenue, both of which they say could further slow the economy.
These Democrats and their intellectual allies once occupied the political fringes, pushed aside by more moderate members who supported both immediate spending cuts and long-term entitlement reforms along with higher taxes.
But aided by a pile of recent data suggesting the deficit is already shrinking significantly and current spending cuts are slowing the economy, more Democrats such as Virginia Sen. Tim Kaine and Maryland Rep. Chris Van Hollen are coming around to the point of view that fiscal austerity, in all its forms, is more the problem than the solution.
This group got a huge boost this month with the very public demolition of a sacred text of the austerity movement, the 2010 paper by a pair of Harvard professors arguing that once debt exceeds 90 percent of a country’s gross domestic product, it crushes economic growth.
Turns out that’s not what the research really showed. The original findings were skewed by a spreadsheet error, among other mistakes, and it’s helping shift the manner in which even middle-of-the-road Democrats talk about debt and deficits.
“Trying to just land on the debt too quickly would really harm the economy; I’m convinced of that,” Kaine, hardly a wild-eyed liberal, said in an interview. “Jobs and growth should be No. 1. Economic growth is the best anti-deficit strategy.”
The article is stuffed with errors, especially regarding the aforementioned 2010 paper, which takes up well over half of the article. This section above, however, has more than enough misconstrued material:
1. The article says “current spending cuts are slowing the economy.” There are no spending cuts in the federal budget. Sequestration merely slowed the growth of federal spending.
2. The “data” that shows “spending cuts” are slowing the economy is never defined, but perhaps Politico is looking at the terrible growth in the last quarter of 2012 – in which spending actually went up, despite what was popularly reported:
In fact, government spending rose by 0.8%, and the decline that Liesman and others are citing only applies to a narrow segment of spending that excludes most social program benefits. This is shown in BEA’s report on GDP, which reveals that the “government spending” in this report consists of “government consumption expenditures and gross investment.” This is merely a subset of government spending that excludes 69% of all federal spending and 20% of all state and local spending.
3. The article puts blame for these Democrats’ sudden turn against even the most remote fiscal responsibility on currently shrinking deficits and the aforementioned “data” on “spending cuts.” However, it also ignores the electoral reality of the Blue Dog Democrats, fiscally conservative Democrats who went from holding over 50 seats in 2008 to barely over a dozen this year.
In short, there are simply fewer fiscally conservative Democrats in the House, making the party more fiscally irresponsible as a whole.
4. Economic growth is indeed critical to deficit reduction – but given how much debt is going to pile up over the next few decades, economic growth will only do so much. Medicare, Social Security, Obamacare, and interest payments continue to build steam, forcing drastic deficit reduction further over the horizon
5. Most of the rest of the article focuses on the alleged inaccuracies in the Reinhart-Rogoff paper from 2010. These claims are woefully inaccurate, and will be addressed later in the week, once a forthcoming paper by Just Facts President Jim Agresti is published analyzing both the critics and the Reinhart-Rogoff conclusions.
6. Going beyond the article section quoted above, the article cites the Congressional Budget Office (CBO), claiming “The debt-to-GDP ratio according to CBO now stabilizes around 73 percent in 2017, well below even the now questionable Reinhart-Rogoff danger zone, though still high by historical standards.”
However, the CBO merely examines publicly held debt. The Reinhart-Rogoff report looks at total debt – and we are at over 100% of GDP.
7. Furthermore, Politico is picking and choosing what to believe in CBO’s reports. CBO actually estimated, on February 6 of this year, that greater efforts at deficit reduction would lead to better economic growth in the long run.
8. The article also ignores how the stabilization of our public debt is based upon CBO’s current law projections, not the more realistic and more likely current policy projections. In other words, the stabilization will almost certainly never happen.
In short, Politico is doing little more than providing cover for Democrats who are finally letting the proverbial cat out of the bag. They were never serious about preventing a fiscal crisis, and now they are finally admitting it publicly.