Bring on the budget deficit

Robert Reich denounces Democrats' debt-reduction fetish, and compares Al Gore to Calvin Coolidge.


Anthony York
September 4, 2001 12:31PM (UTC)

With Democrats and Republicans preparing for a fall budget face-off, a number of people on the left and the right are lambasting the notion of a Social Security surplus. One of the most vocal critics of the so-called Social Security lockbox is Robert Reich, Bill Clinton's first secretary of labor. Reich has been an advocate of using government spending to stimulate the economy in times of economic downturn. Salon conducted a Q&A with Reich over the Labor Day weekend.

You've criticized Democrats for being too deficit-phobic. Do you think now is an appropriate time to go into a budget deficit, given the fact that the tax cut has already passed?

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Right now, when the economy is moving at a snail's pace and it's operating way below its capacity, no one should be overly worried about government going into deficit. If consumers and businesses won't or can't spend enough to sustain aggregate demand, it's perfectly OK for government to fill the gap. Over the long term, it's a different story. Bush's whopping $1.3 trillion tax cut is bad economics and bad social policy. Democrats should move to cancel it so that the large cuts, scheduled to occur after 2004, don't go into effect.

During the presidential campaign, both Al Gore and George Bush said the Social Security surplus was untouchable. Do you expect that to change during the course of this fall's budget fight?

The Social Security surplus is an accounting fiction dreamed up in late 1999. The fiction was relatively harmless when the economy was surging and budget surpluses soaring, but it's a dangerous constraint on rational thought now that the economy is in the dumps. Nothing about it should be untouchable. I expect both Democrats and Republicans will find ways around it this fall -- Bush wants to finance his defense increase and missile-defense shield, along with his energy policy and some added dollars for education, and Democrats want many more dollars for education and prescription drugs. We'll probably end up with a mishmash of charges and countercharges until the public is hopelessly confused, and then both parties will find ways to cut the Social Security surplus for fiscal year 2002 without admitting to doing so.

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Will Democrats be able to make the case that the Bush tax cut has derailed the U.S. economy?

Bush's tax cut should be faulted by Democrats not so much for its fiscal profligacy as for its regressivity. Most of its benefits go to people who are already very rich. We now know that income and wealth inequality widened in the '90s. The tax cut will make things worse. Of course, even if its benefits were distributed progressively, it jeopardizes all sorts of other things the nation ought to be investing in -- not only Social Security and Medicare but also good schools, preschool care, affordable and universal healthcare, and rapid transit. Unfortunately, the Democrats aren't sounding any of these alarms. They're demagoguing about the tax cut jeopardizing Social Security and eroding the so-called Social Security surplus in the short term. They're focusing on the least important of any of the problems with the tax cut.

Do you think the Democrats will be able to hold the line on military spending, or will Bush be able to wrangle another legislative victory by doling out military pork to Democratic districts?

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Democrats have been reluctant to be seen as "soft" on national defense. But they should have the courage of their Democratic convictions and tell the public how absurd it is to have military budgets that rival Cold War levels when, in fact, the Cold War is over. And to spend an additional $300 billion on a missile-defense shield that no one believes is technologically feasible and most insiders understand would be useless against terrorists who smuggle nuclear bombs into America inside suitcases is the height of irrationality.

What do you expect a final budget to look like?

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Bush has already indicated he wants the priority to be put on defense spending, with his relatively small education increases coming second. He'd be in favor of slashing most of the rest of the discretionary -- that is, non-Social Security and non-Medicare -- budget. The Dems will want to spend much, much more on education and also create a big prescription-drug benefit. But I'm afraid most of the public will lose sight of what's going on. Remember, the budget battles this fall are the first round of hostilities that will take us into the midterm election of November 2002. Each side is trying to come up with words, phrases, and sound bites that make it look good and the other side evil or stupid. So don't expect much reasoned or thoughtful debate about any of this.

Do you think there is a consensus among the American people that deficit reduction should be a top priority?

The budget deficit inherited by the Clinton administration in January of 1993 was way too large -- the product of 12 years of Republican supply-side economic baloney and congressional Democratic complicity, including Reagan's giant military buildup of the '80s. Clinton had no choice but to bring the deficit down somewhat, in order to persuade Alan Greenspan and Greenspan's colleagues at the Federal Reserve Board that short-term interest rates could be eased without risking accelerating inflation.

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The unfortunate thing is that Clinton and the Republicans made a fetish out of deficit reduction for its own sake, and created in the public's mind the illusion that deficits were always bad, and reducing deficits always led to good economic times. Al Gore moved the goal posts to even less rational ground when he argued during the last campaign that the surplus ought to be used to pay down the entire national debt -- thereby equating in the public's mind zero debt with economic prosperity. This is reminiscent of the kind of economics preached by Calvin Coolidge.

Given the current state of the economy, fiscal policy ought to prime the pump. Deficits under present circumstances are not a problem. But after more than a decade of being told that deficits are bad and surpluses are good, the public may not be able to accept the truth.


Anthony York

Anthony York is Salon's Washington correspondent.

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