In today’s New York Times, David Leonhardt makes some essential points about trimming the deficit. The surpluses that resulted in the late 1990s were partly because of modest tax increases by George H.W. Bush and Bill Clinton. But they were mostly because of a fast-growing economy:
If the economy grew one half of a percentage point faster than forecast each year over the next two decades — no easy feat, to be fair — the country would have to do roughly 40 to 50 percent less deficit-cutting than it now appears, based on my reading of budget data from the economists Alan Auerbach and William Gale.
He also knocks down the false choice between federal spending for infrastructure and science on the one hand (which would enhance growth) and mindlessly cutting federal spending on the other. To be sure, taxes can be simplified and such ideas as a payroll tax holiday are worth exploring. But we fail to invest in the future at our peril. He also misses a few things about the ’90s.
Back then, America was still a manufacturing powerhouse and the world’s largest exporting nation. China had not joined the World Trade Organization and reached its present power through state capitalism that breaks world trade rules. Critically, America was not an economy dependent on financialization: Glass-Steagall was still in place and integrated commercial and investment banking were still dreams in the heads of Sandy Weill and Hugh McColl and their lobbyists. Also, part of the late 1990s growth was powered by a Fed credit bubble, the chimerical dot-com boom and the hysteria of Y2K, leading to big tech investments. And America was not saddled by debt from the housing crash.
The verdict: Digging out of this hole is complicated, and sustainable growth remains a difficult proposition.
Today’s Econ Haiku:
You’re so selfish, Bill
We Microsoft shareholders
Are the real needy