What We Talk About When We Talk About the Deficit
The United States is running a large deficit this year. That's fine. Tax revenues are way down and automatic spending is way up. This is what a recession budget is supposed to look like. But the United States also faces a large structural deficit that has nothing to do with the recession. It has to do with historically low tax rates, historically high spending, and a boomer generation moving onto Medicare as health care costs continue to soar. That is not fine.
So here's my frustration. When so-called deficit hawks (the folks who worry about the red ink) debate deficit defenders (the folks who aren't really bothered by it), the conversation often goes like this. The hawk says we need to think seriously about cutting spending, raising taxes, and reforming entitlements in the next few years. The defender says this year's deficit is too low and we need to worry about unemployment. The hawk says something about raising the payroll tax ceiling to generate more revenue for Social Security. The defender says we need to spend more money on jobless benefits and jobs.
Do you see the gap? They're not talking about the same thing. One group is talking long-game. One group is talking short-game. They're not mutually exclusive. I happen to agree with all of the above statements.
But take, for example, this New York Times Room for Debate on "The Twilight of the Welfare State." The hawks all say, predictably and accurately, that Medicare is the 800-lb gorilla in the room. Then two smart liberals, James Galbraith and Dean Baker, respond with defenses of this year's budget, saying "the [current] national debt owes little to Medicare and less-than-nothing to Social Security" and "many deficit hawks, seizing on the Greek crisis, are pushing their case to cut the short-term budget deficit, which has nothing to do with controlling long-term deficits."
But many, many deficit hawks are not pushing that case, at all. Maybe I need to expand my menu of reading, but I see very few moderates (even moderate conservatives ... I'm not counting elected Republicans) arguing that the deficit needs to come down immediately. Even at the Pete Peterson deficit reduction extravaganza in Washington two weeks ago, folks who might describe their position as hawkish repeatedly said this was not about our 2010 deficit, but rather our decade-long debt acquisition.
Smart folks who think (A) that we won't hit the CBO's alarming debt projections or (B) that we can handle a significantly higher debt-to-GDP ratio without blowing out our interest rates absolutely deserve many seats at the table when we debate deficit reduction. But when we debate deficit reduction, it's better when we're all answering the same questions.