Political Economy: No Time for Hawks

The consensus view is undoubtedly that you could count on one hand (or two if you are really generous) the Washington politicians who have serious credibility as deficit hawks.

Not one of these rare birds is prominent in the administration of President Obama, even though the White House has made a show of genuflecting at the altar of fiscal responsibility from time to time. And they aren't a commanding presence on Capitol Hill, either.

So, in spite of an increasingly vocal anti-deficit lobby that includes such stalwarts as the Concord Coalition, the Committee for a Responsible Federal Budget and the Peter G. Peterson Foundation, the case for putting the brakes on government borrowing seems to hold no more sway now than it has at any other time in the recent past. That is to say, not very much at all.

One reason debt-minded lawmakers and other officials are often ignored is that they are regarded as shrill -- more akin to Chicken Little than some raptor with sharp eyes and talons.

Another reason their message doesn't resonate, of course, is that now isn't necessarily an ideal time to scold your colleagues for having borrowed excessively -- that is, if you want to be listened to in the future. After all, Washington's response to the financial crisis and the resulting recession has been to borrow and spend at a pace not seen since World War II. Forget for a moment criticism of how the stimulus law and the TARP program were structured and managed; it's hard to argue that the money failed to cushion the economy's fall.

So, the question comes down to whether -- when the current troubles are over and the economy is back on track -- Congress and the White House have a plan to restore budgetary sanity.

Office of Management and Budget Director Peter R. Orszag took a stab at that last week in a speech at New York University. Noting that the $1.42 trillion deficit for the fiscal year that ended Sept. 30 was equal to almost exactly 10 percent of the economy's output for the year, Orszag delivered the "no duh" line of the year. "Deficits of this size are serious -- and ultimately unsustainable," he said.

Orszag isn't without his own bona fides on the subject of the deficit. For years, including his time as director of the Congressional Budget Office, he regularly painted bleak pictures of the future outlays for Medicare and Medicaid. He's long been a prime advocate for overhauling the health care system because, in his view, if Congress can wrestle rising medical costs into submission, the deficit problem will be all but solved.

Still, in last week's remarks, Orszag conceded -- sort of -- that he's making a leap of faith. After promising that Obama wouldn't sign an overhaul bill into law if it would increase costs to the government, he also suggested that the promise of increased health care efficiency would be our salvation. "Reform will also undoubtedly help to improve our long-term fiscal standing -- even if it is challenging to quantify by precisely how much," he said.

Would that this transformational promise were less ephemeral.

Toothless Growls Never has it been truer that politicians of both parties talk a good game about curtailing the government's debt, but act the opposite. Checks for seniors and additional tax breaks for homebuyers are widely disparaged by economists as unnecessary and wasteful, but they have salience in Congress. The health care bill that Orszag says is paid for would curtail medical payments and impose a new tax on the rich that would soon reach down into to the upper-middle class (much as the alternative minimum tax threatens to now). But past behavior shows that lawmakers are unlikely to let those fiscal fangs actually bite.

About a month from now, Congress will engage in one of its periodic paroxysms over the deficit when it is called on to raise the limit on government borrowing. Votes to raise the debt ceiling are in one sense silly. Because many of the government's obligations have been incurred long ago-- by previous acts of Congress, such as creation of permanent Social Security and Medicare programs, no less -- lawmakers can't say no to the debt increase. To do otherwise would result in a financial cataclysm much greater than the one we've just been through.

Still, there will be words. And there will be partisan blame-laying. (Orszag said that wasn't his intention when he noted that more than half of the $9 trillion in expected deficits over the next 10 years will be the result of decisions made between 2001 and 2003.)

It's also important to distinguish between those folks who merely want to cut spending (mostly to shrink government), and those who are worried, but take a more holistic approach to this complex subject. The latter group tends to believe that government has a job to do and it costs money. They just want to make reasoned choices.

Battling the recession set back the cause of the deficit hawks, and those who flock with them. And with the economy still on the mend, it's premature to talk specifically about steps to bring spending in line with revenue. But Orszag has elevated the conversation. We'll have to see how it unfolds.