“Balanced budgets goood! Budget deficits baaad!” That’s a reference to Phil Hartman’s Frankenstein, which is itself a reference to Frankenstein (or perhaps more accurately Young Frankenstein). It implies a gut reaction to things — not a considered intellectual opinion. It’s great fun in the films and parodies, even if it is rather the opposite of what is going on in the book. But what bothers me is that supposed serious political analysts don’t usually have any more depth of thought, “Balanced budgets goood! Budget deficits baaad!”
That brings us to Fred Hiatt who is upset that the federal government isn’t balancing its budget, but he’s very happy about something, One Governor Bucking the Bipartisan Tradition of Passing the Buck. It is such a load of Villager idiocy that I’m not going to even go into it. It’s filled with the usual “Both sides do it!” nonsense, even though the Republicans are responsible for everything he’s actually complaining about in the budget that Congress just passed. He’s also on about “unaffordable pensions” for public sector workers. I wonder what Mr Hiatt would think if someone came in and told him the pension he negotiated with The Washington Post 34 years ago is “unaffordable” and will have to be cut.
What’s absurd is that Hiatt compares the state and federal governments as though they are comparable. States have to maintain more or less balanced budgets; governments with their own currency (like our federal government) do not. Given that, you might wonder why everyone makes such a big deal out of balanced budgets. And the truth is, the times when we ought to worry about them are exactly the times when people like Fred Hiatt don’t worry about them.
Think back to glory days of the late Clinton administration. We had a budget surplus! And everyone of Fred Hiatt’s caliber of analysis thinks it is because we cut spending and raised taxes. But that was a very small part of it. In fact, although these policy changes would have decreased the deficit, they wouldn’t have come close to balancing the budget. What did it was the roaring economy, which brought in loads more in taxes from people who didn’t only got jobs, they god raises for the only time in the last four decades.
Had we not had a surplus at that time, it would have been an excellent time to get one. Because that’s the only time it matters to have a balanced budget: when the economy is strong. The reason is because the economy is working at peak efficiency. Businesses want to borrow money to invest. If the government is also borrowing money, the cost of loans goes up. That’s really the whole story. Budget deficits are bad for the economy when there is great demand from the private sector for loans.
Is that the case now? No! Right now, the federal government can borrow money with 10-year treasury notes for 2.24%. The lowest this number ever was during the Clinton administration was 4.44%. And most of the time it was close to 6%. What this tells us is that the economy is performing poorly. The private sector is not interested in borrowing money. So if the government weren’t borrowing it, it would just be sitting there, doing nothing.
And that’s what Fred Hiatt wants. Dean Baker is always good at stabbing right at the heart of the matter, and his response was, Washington Post Editorial Page Editor Fred Hiatt Pushes for Higher Unemployment. That’s what’s so annoying about the way we talk about economics in this country. It’s all about budget deficits and interest rates. These all sound like no-brainers — or at least morally neutral. But for Very Serious People like Fred Hiatt, the policies they push just happen to always mean that regular Americans have static wages — when they have jobs at all.