Deficit games

Today the Bush administration will once again claim its budget-busting tax cuts are working. And the press will once again buy it.

By Brad DeLong

Read more: Opinion

July 11, 2006 | Suppose you are George W. Bush and you cut taxes. By how much do you have to cut spending in order to keep the budget deficit from growing? Gregory Mankiw -- chosen by Bush to chair his Council of Economic Advisers and be his chief economic advisor in 2003-2004 -- says that initially you have to cut spending by almost the entire amount of the tax cut. If you do, however, according to ex-CEA head Mankiw and most credentialed economists, you find that the economy does grow faster.

What if you cut taxes but don't cut spending? There the consensus of economists is equally clear. A tax cut without accompanying spending cuts lowers economic growth. In the end taxes must be raised, and raised to a higher level than they were before the cutting began. As Ben Bernanke -- whom Bush chose to succeed Mankiw as chairman of the Council of Economic Advisers, and then chose again to run the Federal Reserve -- puts it: "This adverse effect of budget deficits on economic growth is probably the most important cost of deficits, and a major reason why economists advise governments to minimize their deficits."

Hold on tight to both of these views. They are consistent with those of professional economists, and are also Republican -- spotlessly Republican. They are, however, the views of reality-based Republicans, a remnant scarcer on the ground these days than wild quail.

Needless to say, the Bush administration does not heed the advice of reality-based Republicans, even the ones it hires. It's the faith-based, fuzzy-math Republicans who really call the shots, and who've scheduled a press conference in Washington Tuesday to trumpet some good economic news. This afternoon, the Bush administration will claim that because of its supply-side policies, the 2006 budget deficit will be about $300 billion, much lower than the $423 billion the Bush administration forecast last February. It will claim that its 2003 tax cuts have more than paid for themselves. It will claim that the tax cuts have accelerated economic growth enough to produce a net gain in revenue.

Does it think that reporters won't ask the obvious questions -- like, didn't you guys say back in February that your forecasts already included the effects of the 2003 tax cuts on revenue? Do you really think your audience is too stupid to realize that revisions in the forecast since February come from things that have happened since February and not from things that happened three years ago? Didn't Republicans like Dick Cheney claim that the 2001 tax cut wouldn't create a deficit, that the 1993 tax increase wouldn't reduce the deficit and that the 1981 tax cut wouldn't increase the deficit? Shouldn't people who are zero for 3 be less sure of themselves?

In fact, the Bush team has plenty of reasons to think its press conference will be a success.

The administration does think reporters won't ask the obvious questions -- or that even if they do, the stories that will get written about the press event will be "he said, she said" articles about how "experts" disagree. Paul Krugman has the best line about the elite Washington press corps' coverage of the Bush administration: If it were to announce this afternoon that the Earth was flat, tomorrow's headlines would read "Shape of Earth -- Views Differ."

Next page: Kristol: It's about "political effectiveness," not "accounting deficiencies"