Do deficits matter? Conservatives have sometimes claimed that they don’t. Dick Cheney has said on more than one occasion that, “Reagan taught us that deficits don’t matter.” In fact, he said that to me personally once.
Supply-siders like me have often downplayed the importance of deficits, arguing as George Gilder and Jack Kemp argued in the 1980s that we can ‘grow our way out of it’. But we can only grow our way out of it if we actually grow. And if we don’t grow, there comes a time when debt grows to the point where it really is unsustainable.
That’s what is so insane about the compromise choir’s siren call for House Republicans to cave on raising taxes on upper income brackets, and on the debt ceiling. I think caving in on either of those issues would be a mistake, of course. But the idea of caving on both is utterly indefensible. If we’re going to engage in even more public debt accumulation, the only possible hope we have to deal with that problem is to ‘grow our way out of it’ like we did before. But we’re not going to grow our way out of anything by raising taxes on the upper income brackets, which are most adaptable to incentives.
And please don’t give me any of that nonsense about how we’d just be going back to the same taxes we had when Clinton was president. We would not. Far more people are above the $250,000 income level now than there were when Clinton raised taxes on them in the early 90s, and leaving the lower income cuts in place while rolling back the higher ones would make our tax code much more steeply progressive than it was then. Finally, Clinton did not have the Obamacare tax hikes, nor any of the other ‘taxes’ in the form of extremely high levels of regulation and dollar devaluation policies. If you want to go back to Clintonomics, be my guest, but take the whole winning formula.
But America is not currently taking the whole JFK/Reagan/Clinton/Bush II’s first term growth path. We’re taking maybe the worst anti-growth path since Hoover/Roosevelt, and that means that deficits matter quite a bit.
Yes, deficit hawks were wrong about the Reagan era, but U.S. debt levels at that time were below 50% of GDP during nearly all of both Reagan terms, rising only slightly above that level at the end of his second. Now, Gross National Debt as a percentage of GDP is over 100% and rising rapidly. Reagan’s annual borrowing hovered in the 3-5% of GDP category, while for the past few years the deficit has hovered around nearly 10% of GDP. Furthermore, Reagan’s much more limited borrowing was much more palatable to conservatives because a rather large component of it was being used to finance victory in the Cold War.