On Tuesday, President Bush’s nominee for the Council of Economic Advisors, Harvard economics professor N. Gregory Mankiw, tried to defend his former adherence to fiscal responsibility before the Senate Banking Committee.
In his textbook, “Principles of Economics” — a new edition of which was released just this year — Mankiw argued against Arthur Laffer’s theory that tax cuts, in encouraging economic growth, are self-financing. Mankiw also argued in that book that rising deficits are extremely harmful to the economy, by driving up interest rates and severely inhibiting growth.
There was a time when such arguments weren’t controversial — and in fact, they were commonplace among Republicans. But times change. And Mankiw — as a potential Bush administration official — endorses the president’s most recent tax-cut proposal, $550 billion in the House version and $350 billion in the Senate, saying that the slow economy necessitates bold action.
“I hate to see a highly competent professional turn himself inside out, twisting like a pretzel,” said Sen. Paul Sarbanes of Maryland, the ranking Democrat on the committee.
It’s unfair, however, to pick on Mankiw; these days the Beltway is a veritable Mr. Salty Goes to Washington. And unlike the unfortunate January 2002 snack at the White House, these pretzels are putting a smile on the president’s face.
Dozens of top-tier Republican officials for whom reducing the deficit once seemed their raison d’être are now in practice completely contradicting that position. Though the sluggish economy explains some of this, many of these officials were, when it came to eliminating the national debt, as hawkish during the economic downturn of 1990-91 as they were throughout the rest of the ’90s. “Frankly, I find it to be one of the most incomprehensible political events in this country over the last 25 years,” former GOP Sen. Warren Rudman of New Hampshire tells Salon. Rudman, a deficit hawk who helped found the fiscal-prudence-preaching Concord Coalition, says that he talks with former colleagues currently in the Senate to “try to get people to explain it to me and they can’t. I am nonplused.”
Take Senate Majority Leader Bill Frist. “I support a balanced budget first, and then let’s give a tax cut if there’s a dividend,” then-freshman Sen. Frist, R-Tenn., told constituents in June 1995. Eliminating the federal government’s yearly deficits and the sizable national debt was all important to Frist. Just days after his election in November 1994, he began lobbying the Senate GOP leadership for appointment to the Budget Committee “to help him meet several campaign promises: to balance the federal budget, reduce the federal deficit and to reduce the size of government agencies,” according to the Knoxville News-Sentinel.
And Frist wasn’t fighting his cause alone. “People in America’s heartland are frustrated with a Congress that cannot balance its own budget,” Rep. Dennis Hastert, R-Ill., then just in his second term, said in July 1990. “It’s high time for some accountability and some responsibility.” Hastert said that Congress “acts a lot like feeding babies: irresponsibility on one end and no accountability on the other.”
At the time, all over the nation, Republican officials decried the fiscal irresponsibility of Washington and swore that if they were in charge — controlling the House, Senate and White House at the same time — things would be different. That time has come, and projected deficits are higher than they’ve ever been before in the history of the known universe. Frist, who in 1995 called deficits “inhumane,” is now shepherding the president’s tax-cut package through the Senate this week, knowing that it will add at least $44 billion this year alone to the ever increasing national debt.
In February, after years of budget surpluses, the Bush administration projected a $304 billion deficit for this year, though that figure does not include the current tax-cut proposal or the costs of the war in Iraq. Before those were factored in, the Bush administration anticipated that deficits would continue at least through 2008, adding up to $1.1 trillion. The economy slowed down toward the end of the Clinton administration, as well as after the disaster of 9/11, but many estimates place the 2001 tax cut as the single largest contributor to the budget deficit.
This perhaps wouldn’t be so bad if outlays — i.e., “spending” — were reined in. But despite years of complaints about Democrats who throw around cash like Bill Bennett at the Bellagio, the Republican-controlled House, Senate and White House are now calmly writing check after check in red ink.
“In the near term, given the recession and the war, deficits are a perfectly understandable phenomenon,” says Carol Wait, the president of the Committee for a Responsible Federal Budget. But planning economic strategies that will ensure deficits for five to 10 years, “when we stand to experience strains that we’ve never felt before with the retirement of the baby boom generation, that poses a very real concern.”
Former Rep. Tim Penny of Minnesota — once a conservative Democrat, now a registered Independent — spent years in Congress working with Republicans to curtail spending and balance the budget. He reports that throughout those years of the Democrats ruling Congress, he always told his deficit-hawk pals from across the aisle that “when they get power they’re going to like the taste of spending, too — and they do.”
That said, when asked if he’s surprised at the deficits amassing under the watch of the self-proclaimed fiscal conservatives he worked with for years, Penny responds, “I’m appalled. I thought there would be more restraint on the spending side than they’ve exhibited, and I never — never — thought they’d be this wildly irresponsible on the tax side.”
On Tuesday in Indianapolis, Bush acknowledged the growing deficits, saying that the way to deal with them would be to “say to the Congress, Here are the guidelines, here’s what we expect you to honor, and that is, in this case, no more than 4 percent increase in discretionary spending.”
The problem with that argument, of course, is that the Bush administration and the GOP House and Senate show little inclination to initiate the kind of spending cuts necessary to tackle the deficits in any meaningful way. “The administration’s budget … does not propose anywhere near the level of spending restraint that would be needed to justify its long-term tax cut proposals,” Peter G. Peterson, the secretary of commerce during the Nixon administration and co-founder of the Concord Coalition, testified before the House Financial Service Committee on April 30. Peterson said he disagrees with Democrats “ideologically wed to big government.” But he also disagrees with “many Republicans who, despite their rhetoric, aren’t doing much to cut spending either. Indeed, we seem to have embraced a policy of guns and butter and tax cuts.”
To deficit hawks like Rudman, the inconsistency is remarkable. House Majority Leader Tom DeLay, R-Texas, recently told a reporter from the Austin American-Statesman that he made up his mind during the president’s January State of the Union address that “if [Bush] feels passionate about something, then I’m going to give it to him.” But on March 3, 1998, DeLay was the one with strong feelings, saying at a press conference that he was “ecstatic” about being in Congress on the day that the Congressional Budget Office announced that the federal treasury would have an $8 billion surplus — the first one in a generation.
“This is a day that I’ve dreamed about,” DeLay said. “When I left my business in 1984 to run for Congress, I really didn’t think that this day would ever come,” since Democrats for so long had controlled Congress. DeLay lauded all the financial benefits that would come. “Remember when we took over in 1994, the Speaker of the House said time and time again that if we balanced the budget, interest rates would come down,” he said. “They have come down, and it’s creating an incredible situation around the country, an incredible economy around the country where people are having more money to invest.”
DeLay said he had a “simple message” for President Clinton. “Now that we have a surplus, don’t mess it up.”
Rep. Jennifer Dunn, R-Wash., pointed out at that same press conference the practical consequences of fiscal restraint. “The other day I talked to my banker, and I’m renegotiating my mortgage from 9 percent down to something around 7,” she said. “That’s the 2 percent drop we’re talking about when the public and the financial community believe that you truly are in control and are willing to impose constraints on your own spending.”
Perhaps the most notable U-turn comes from Rep. Jim Nussle, R-Iowa, chairman of the House Budget Committee. Nussle, who helped steer president Bush’s original $726 billion 10-year tax-cut package through the House did nothing to hide his anger when Sen. Chuck Grassley, R-Iowa, chair of the Senate Finances Committee, winnowed it down to $350 billion in order to secure its passage. On April 11, Nussle compared Grassley to what is shaping up to be the all-purpose GOP insult — “France” — saying that “even the French had the courtesy to inform the United States they were not voting with us in the U.N.”
Grassley, of course, argues that he was merely trying to get a package through the Senate, where two GOP senators — Olympia Snowe of Maine and George Voinovich of Ohio — were expressing concern specifically about the deficits the tax package will create. (In a recent interview with Salon, Voinovich was asked how Bush’s budget could affect this 34-year-old reporter. He responded, “Well, to be frank, if we do not act responsibly by the year 2009 our deficit is going to be over $9 trillion, and it will be your responsibility to pay it off.”)
But Nussle’s slam is even more interesting in light of the fact that deficit reduction was his sole cause throughout the 1990s. Like Frist — who told the Knoxville News-Sentinel in 1997 that “by just getting the deficit down to zero,” employment would increase and interest rates would drop — Nussle saw the country’s massive deficits as “the largest impediment to economic growth,” as he put it in a House Banking Committee hearing in 1992.
Running for his first reelection campaign that year, Nussle pledged that if the deficit hadn’t been halved in four years he wouldn’t run again in 1996. He was admirably consistent in his views. In July 1993, working with Penny, he led the charge to block a $3 billion package providing emergency relief to flood victims in eight Midwestern states until the package could be paid for by commensurate spending cuts in other programs. “This sets a precedent,” he said. “We won today the opportunity to discuss how we are going to pay for it.” In February 1994, he led a similar campaign to offset $7.1 billion in earthquake relief in California. And in 1998, Nussle was single-minded about what should be done with the emerging budget surplus. “I believe we should pay off the national debt before we start thinking about what we can do with the ‘surplus.’”
Endorsing him in 1996, the Dubuque Telegraph Herald editorial page gushed, “Nussle can be counted on to continue the drive to get the federal government to spend no more than it takes in.”
But where is Jim Nussle now? “Deficits are not the only measure” of fiscal responsibility, he said to the National Journal in January, adding that “just because your checkbook is balanced doesn’t mean you’re fiscally responsible.”
“That’s somewhat different from what he said when it was somebody else’s deficit,” says Wait of the Committee for a Responsible Federal Budget.
“Here’s what I call it,” former congressman Penny says: “partyology.” If ideology is “a rigid viewpoint that steers you in one direction even if takes you over cliff,” partyology, Penny says, is that same blind adherence based not on any belief but rather your political affiliation. “They’ve got a president who has a dumb idea, and because he’s their president they’re going through mental gymnastics to explain why they’re geting rid of a history of fiscal responsibility.”
Nussle, Penny says, is “a nice enough guy, and some day when he’s allowed to, he’ll try to be fiscally consistent again.” Angela Cuck, spokeswoman for the House Budget Committee, says that Nussle’s “basic stance on this is that he absolutely is still concerned about budget deficits and that is why we’re working to grow the economy. He believes growing the economy is the best way to increase tax receipts. And also to absolutely control spending.”
Wait credits Nussle with trying to cut spending to at least partially offset some of the tax increases, but says he “got overruled by a majority in his conference and a majority in the House.” Cuck points to the House Budget Committee’s projections, which have the nation returning to budget surpluses in 2012. This rosy forecast is of course based not only on projected economic growth, which will indubitably return, but also on spending cuts, which are far more iffy.
Robert Bixby, executive director of the Concord Coalition, has been with the organization for its full 10-year history and says that in private conversations many GOP lawmakers admit sharing his concerns. He is surprised not only that the deficit hawks he once considered allies are now the worst offenders of all time, but also that they are as reluctant to rein in spending as many of their Democratic predecessors were.
Republicans argue, “You see, if we just cut spending, the tax cuts will work,” Bixby says. “It’s a good line, and it’s factually correct.” A more powerful reality, however, is that “spending simply isn’t going to be cut to that point.”
Bixby thus touches on one of the biggest problems with the deficit-blind Republicans: They have virtually no opposition. Not only are Democrats embarrassingly enfeebled, on this issue they are remarkably absent. Deficit hawks point to the combination of Clinton in the White House and the GOP Congress as the political equation necessary for the surpluses of the 1990s. But Democratic Congresses have not been known for their fiscal prudence, and their spendthrift history would lead one to believe that the deficits might be just as bad if they were in charge, but the money would be spent on various federal programs rather than tax cuts. Says Bixby: “Eighty percent of the budget consists of entitlements, net interest and defense spending, and you don’t hear anyone on either side of aisle talking about cutting those programs.”
Wait, conversely, says she isn’t surprised that so many deficit hawks have changed their tune once they were handed the conductor’s baton. “It has been clear to me for very long period of time that deficits only become a political issue when they impact the economy more broadly.” Since interest rates are currently low — though that stands to change as the debt accrues — there seems to be little effect on the man on the street. Without repercussions on the public right now, deficits are “the greatest thing since popcorn,” she says. “It lets you take care of voters today and let someone else tomorrow take care of paying the bills.”
That might be fun, of course, but it isn’t necessarily wise. As Majority Leader Frist said back in the 1990s, when he wasn’t running the show: “If we’re going to restore the American dream … we’ve got to change the way Washington does business. It will take several years. It will take the balance of the century.” Otherwise, he said, “the future is bleak.”