The Truth About the 1980′s Deficit Comment Rescue
Aug 12th, 2009 by David Anderson
“Also Gramm Rudmanan Hollings proved the point that when spending is controlled, you can get deficit reduction and tax reform. The top tax rate was slashed starting in 1987 and the deficit went down.” (David Anderson)
David – what kind of weird history books are you reading? Everything you said in that comment was factually wrong.
Actually the facts are pretty easy to come by. I don’t think the GAO is weird.
Fiscal year: 1986;
Unified budget deficit or surplus: -$221.215.
Fiscal year: 1987;
Unified budget deficit or surplus: -$149.728.
Fiscal year: 1988;
Unified budget deficit or surplus: -$155.152.
Fiscal year: 1989;
Unified budget deficit or surplus: -$152.456.
I am glad that Noman brought the subject up. We need to discuss deficit spending.
I am not one of those deficit hawks who would sacrifice the well being of my fellow citizens to balance the budget at all costs. I have no problem with a deficit during a recession or worse. It helps the economy to keep some spending and confidence up. It softens the blow to keep people fed and housed with food stamps and unemployment insurance. It keeps people from dying prematurely with Medicaid. It keeps an educational infrastructure for the the long run. Running deficits in the early 1980′s was smart policy. Running them now is as well. The problem I have with the deficits is the deficit culture. You can not build long term prosperity on debt or it becomes a house of cards. In good times you run surpluses and pay down the debt. Bad years tend to be average two of 10 and good years 7 of ten with a year of mediocre performance.
In bad times, would I lose my house and let my kids die or borrow money and pay it back in good times. You know the answer. The government in theory does the same. The problem is that it often says, borrowing is easy. It stakes our well being on a house of debt. No one prospers in the long run by being on the wrong side of the rule of 72. The people who prosper are the lenders not the borrowers.
In the 1980′s we lost our will for a couple of years to deal with the deficit. The economy was booming and we kept borrowing. Revenues had nearly doubled so the tax cuts weren’t the issue. Spending increased even faster than economic growth was increasing the revenues. We decided to face it in a half hearted way, but even just not increasing spending as much resulted in falling deficits. If cutting tax rates gave us deficits then the fact we slashed the top rate almost in half should have spiraled it out of control.
The lessons for today are significant. It is alright to keep infrastructure projects going that would fall to the budget axe. It is alright to use this as an opportunity to deal with our energy infrastructure. Those will bring long term growth. Spending on safety net items is fine. They will reduce themselves.
What is not alright is the waste in the stimulus bill which does not deal with housing and the fundamental issues of the crisis. Imposing new policies which stifle growth such as cap and tax is begging for a double dip. Imposing policies which make the deficit a huge institution is insane. That is one reason why I am opposed to the Democratic health reform proposals. There are good bills which cover more people, give more freedom, and are revenue neutral.
I thought most of the ‘stimulus’ was for ‘shovel ready’ projects? Where are the shovels? Where are the projects? Where is the ‘recovery’ the White House promised would occur ‘within weeks’ of the passing of the ‘stimulus’ bill?
More Demo-Marxist bulls#!t.