REICH: Fiscal Irresponsibility
It's time to strike the term "fiscal responsibility" from responsible political rhetoric. Few terms in public discourse have moved as directly as this one has from imprecision to meaninglessness without any intervening period of coherence.
Democrats have been particularly loose-lipped about it lately. House Minority Leader Richard Gephardt, recently campaigning in Iowa for a fellow Democrat, was quoted in The Des Moines Register as calling the Bush tax cut fiscally irresponsible and touting the Democrats' 1993 effort to reduce the budget deficit. "I'm glad we did what was right in 1993," he said, "and I'll do it again because I believe in being fiscally responsible with taxpayers' money." The reporter for the Register assumed that Gephardt had meant that Democrats would repeal the Bush cut if they controlled the House. The minority leader's office promptly issued a rejoinder: He'd meant no such thing.
Then what did Gephardt -- who is among the Democrats' shrewdest politicians -- mean? In the weeks since the tax cut was enacted, Democrats and liberal pundits have attacked it, along with Bush's budget projections, for sloppy math and plain dishonesty. "No way the numbers will fit" is the common complaint, based on the implausibility of maintaining a balanced budget while cutting taxes by $1.3 trillion and simultaneously delivering on promises to increase spending on the military, education, and prescription drugs. Inevitably, the Bushies will have to raid the Social Security and Medicare trust funds, say Democrats.
Yet Democrats won't commit to repealing the tax cut. As a result, they've sprung a fiscal trap on themselves -- and Republicans couldn't be happier. If Democrats won't repeal the tax cut, their pious pronouncements about fiscal rectitude suggest that they might go along with even deeper cuts in spending than the Bush administration will admit to seeking, in order to keep the budget balanced.
The theology of fiscal responsibility prevents Democrats from proposing anything that requires substantial new spending. Any plans for affordable and universal health care and preschool, effective mass transit, and better schools would invite the question, how do Democrats plan to pay for it all without repealing the tax cut or borrowing?
The fiscal trap also undermines the Democrats' contention that Bush's one-sided Social Security commission has painted a misleadingly bleak picture of Social Security's future in order to frighten voters into believing that the system needs a radical overhaul. If the Bush tax cut is as fiscally irresponsible as the Democrats say it is, then Social Security's future is indeed bleak and they should commit to repealing the tax cut. They can't have it both ways. There's no debating that the United States will have a huge elderly population that needs support. The issue isn't the "solvency" of the system but whether we participate together in providing that support or decide that individuals and families should be on their own. Privatization is the first cousin of social Darwinism. That's what Democrats should be shouting about.
All of which brings us back to the political obtuseness and economic incoherence of "fiscal responsibility" as a Democratic theme song. Last year, you may remember, Al Gore promised to use the budget surplus to eliminate the federal debt altogether. But why should this be an objective of public policy? To the contrary, as John Maynard Keynes noted 70 years ago, government borrowing can help ensure sufficient demand, so the nation's productive capacity will be fully utilized. It's a bizarre twist of fate that the Bush administration is now championing Keynesian economics while Democrats have been sounding like apostles of Herbert Hoover.
There's an even more basic reason that government borrowing may be appropriate: As Bill Clinton wisely noted at the start of his administration (but forgot later on), it's better to borrow money for improvements in education, health care, and infrastructure than for the nation to do without them. A rational family or business surely would borrow to make corresponding investments. Where's this sound logic on the Democratic side now that we need it? When Republicans aren't shamelessly using Keynesian theory for their own ends, they're reverting to the supply-side notion that people will work harder if they can keep more of the money they earn. The rich, in particular, will apply their talents with greater verve if their take-home pay is in the stratosphere rather than merely sky-high. Supposedly, all this will spur economic growth and buoy tax revenues enough to fill any fiscal shortfall. We tried this theory once, and it failed.
What has not been tried -- we didn't give it a chance in the Clinton administration -- is the Democrats' fundamental alternative, which is to expand the economy by investing in people through public spending. Not just rich people, but everyone. This would require repealing the Bush tax cut and borrowing if necessary.
We may never have a chance to try it if the Democrats keep insisting on fiscal responsibility -- demanding that the budget be balanced and the debt be eliminated. Americans won't ever know what's really at stake behind the warring numbers over taxes, the budget, and Social Security if Democrats continue to claim that austerity leads to economic growth while Republicans tell them to throw a party (and if they're rich, to throw an even bigger one) with the money they save by paying less in taxes. No one any longer is talking about the central economic importance of investing in our nation's people -- and that's about as fiscally irresponsible as you can get.