The artwork above is courtesy of Jodi Beggs, proprietress of the lively Economists Do It With Models site, who graced us with a visit in yesterday‘s comments and expanded on those comments on her own page. (That’s me kicking Paul Krugman in the gut.)
Jodi objects to the tone, and in part to the substance, of my response to Paul’s recent attacks on the “deficit hawks” who oppose various spending programs that Paul happens to favor. I’d summarized his rhetorical technique as follows:
- Identify an adversary who is concerned about the cost of some program Krugman likes.
- Label that adversary a “deficit hawk”.
- Belittle (perhaps reasonably) excessive concern about the deficit while ignoring legitimate concerns about the costs of spending and taxation, which is not at all the same thing.
- Omit any attempt at an honest reckoning of costs and benefits.
- Pretend you’ve said something relevant.
- Sneer.
I particularly objected to Paul’s labeling as “hypocrites” those who support both spending cuts and tax cuts. Paul thinks that’s hypocritical because spending cuts and tax cuts have opposite effects on the deficit. I think that’s completely ridiculous because the merit of a policy depends on many things other than its effect on the deficit. Here’s Jodi’s attempt to prove that we’re both right and both wrong:
If all people claim to care about is size of the deficit, then they are being hypocritical in advocating one method of reducing the deficit and eschewing another. If all people care about is economic efficiency, then they are by definition internally consistent if they advocate both benefits and tax cuts. The reality of the situation is that most reasonable people put some weight on both deficit reduction and economic efficiency, so people are not automatically hypocritical or consistent just because they are simultaneously in favor of cuts in unemployment aid and taxes.
I agree in principle, but I object in practice, because in practice nobody cares primarily about the size of the deficit.
Look. Any time the government spends money, there are two or three downsides (which might or might not be outweighed by the upsides). Call the downsides Thing One, Thing Two, and Thing Three. Thing One, the biggee, is that resources get consumed. Thing Two, which can also be pretty big, is that the program must be financed by (current or future) taxes, which discourage productive activity. And finally, there might or might not be a Thing Three, which is that any increase in the deficit could conceivably have some minor disadvantages that are, by any reckoning, eensy weensy compared to Things One and Two.
Because Things One and Two are so much bigger than Thing Three, it must be extremely rare for the prospect of Thing Three to sway anyone’s opinion about the overall desirability of any given spending program. So for Paul to pretend that most of the opposition to his favored programs is based on Thing Three still strikes me as, yes, pummelling a straw man.
Everyone agrees that the deficit is a relatively minor issue (though some of us have said so more consistently than others). Paul wants to pretend that his opponents believe otherwise so that he can prove them wrong. That’s easier, I suppose, than engaging the issues they might be right about.
” because in practice nobody cares primarily about the size of the deficit. ”
This may be true, but it is not what politicians are saying – there is very much political rhetoric that this is indeed the primary concern. For example, there is a budget in the UK today who’s main purpose is said to be deficit reduction. If they do not really care about the deficit this makes them liars rather than hypocrites.
Many people suspect that this is in fact the case, and they are using deficit reduction as an excuse to cut policies they do agree with.
That should say they do *not* agree with.
From the Wall Street Journal on George Osborne: The chancellor has said that the key danger to the U.K. economy isn’t early fiscal consolidation and spending cuts but inaction on the budget deficit,
Regarding your recent posts:
I agree that the level of government spending is far more worrisome than the level of debt, but I don’t think that arguing that people can “opt out of the debt” by buying government bonds is a convincing argument. Shouldn’t Ricardian equivalence break because many households can’t afford to purchase enough government bonds to offset their debt burden?
JLA: Shouldn’t Ricardian equivalence break because many households can’t afford to purchase enough government bonds to offset their debt burden?
Ricardian equivalence breaks down for all sorts of reasons, but this isn’t one of them. If I cut your taxes by $10, then you can buy exactly $10 worth of government bonds without changing your consumption path.
“So for Paul to pretend that most of the opposition to his favored programs is based on Thing Three still strikes me as, yes, pummelling a straw man.”
Well that “most” strikes me as a little more than he’s claiming. He seemed to just be saying something along the lines of “*if* that’s your argument you’re wrong”.
Pointing out flaws in bad arguments is fine even if you don’t happen to have a good argument and even if the guy making the bad argument comes to good conclusions.
JLA: Shouldn’t Ricardian equivalence break because many households can’t afford to purchase enough government bonds to offset their debt burden?
SL: Ricardian equivalence breaks down for all sorts of reasons, but this isn’t one of them. If I cut your taxes by $10, then you can buy exactly $10 worth of government bonds without changing your consumption path.
What if the tax cut today doesn’t benefit you much, but your expected future income path is rising so that future tax increases will fall on you? For example, a medical student may have zero income now but expect to make $300k starting 10 years from now. While the deficit change may imply an extra $100,000 in present value of future taxes for him, he does not have the $100,000 to buy the bonds now. That is an extreme example, but I would guess that the majority of younger people have rising marginal tax rates into the future.
thedifferentphil: Yes, this is of course exactly right, though it can’t affect the *average* household. This sort of heterogeneity was one of the “all sorts of reasons” I had in mind. You could reasonably argue that this comes under JLA’s point, but I think of it as separate because it relies on heterogeneity, which isn’t specified in JLA’s original comment.
I am pleased that my somewhat lame Photoshop efforts are being put to good use. :)
On the point of whether nobody cares primarily about the size of the deficit, I don’t have enough information with which to agree or disagree. What I do know is that people seem to (perhaps wrongly) care more about the deficit in political circles than in economic circles, probably because shrinking the deficit sounds intuitively appealing to voters who haven’t fully thought through the implications of this course of action.
I come back to ” because in practice nobody cares primarily about the size of the deficit.”
From a poll in March:
“For the first time since Gallup has started asking the question, the federal deficit tops the list of problems Americans say the nation will face 25 years from now”
http://crfb.org/blogs/americans-believe-deficit-largest-looming-problem
They may be wrong, but it is widely believed. It is probably so because politicians have a louder voice than economists, as economists-do-it-with-models mentioned above.
He may be built on sand, but this man is made of stronger stuff than straw.
Isn’t the simplified argument:
Deficit = Taxing today’s spending tomorrow
Even = Taxing today’s spending today
Surplus = Taxing today and tomorrow’s spending today
ie the whole surplus/deficit argument is which taxpayers do you want to pay for current and future spending. I don’t think it makes a difference as Landsburg has pointed out that taxing today leaves less for future generations anyway. Taxing tomorrow means leaving them more but calling an obligation on them.
So it all just comes down to the spending. No matter how small it is compared to the size of the tax burden you are shifting across generations.
I completely disagree on this one. Republicans regularly use the debt as the reason why we shouldn’t spend on SCHIP, unemployment benefits, health care reform, etc. I almost never hear them talk about the impact of taxes on productivity.
Just curious. Can a “deficit hawk” not be hypocritical if they believe a tax cut can eventually lead to higher tax revenue?
Harold,
Don’t you think this is a matter of semantics? Most Americans (or British/whoever) probably think “spending” or maybe “debt” (in an overall sense), not one year’s deficit amount, when they are asked “do you think the deficit is a conern?” I just find it hard to believe that they are answering the question with no regard for actual spending and *ongoing* deficit, which of course is not the same as deficit by definition but what is likely going through their heads.
I am sure this has all been said, but what we really need to distinguish are tax cuts, transfer spending (like unemployment benefits), and government spending that involves the redirection of economic resources (like defense spending or environmental regulation.) The latter have a “full” cost in the sense of using economic resources and making them unavailable for private use. The first two have a government budget cost and an efficiency or DWL cost (which can be negative), but otherwise leave resources in the hands of the private sector (redistribution). Steve is being ambiguous on this–on the one hand he indicates that he understands unemployment benefits are just transfers and hence equivalent to negative taxes, and on the other and he talks about government spending as if all government spending were the same. I detect a little hypocrisy all round.
you say no one cares about the deficit, that thing three is of little value compared to thing one and two.
But thing 3 is thing two, it is a symptom of thing 2 where an increase in thing two causes an increase in thing 2 (in the future). when people care about the deficit, they are really caring about thing 2.
steve: Thing 2 is the deadweight cost of taxation. Thing 3 is the timing of that cost. Thing 2 is affected by spending, Thing 3 is affected by deficits. The cost is overwhelmingly more important than its timing.
Josh – It probably is a matter of semantics, but more a matter of politics. Politicians that want to cut spending sound nasty if they say “I want to cut unemployment benefit because I don’t agree with it”. They find it more comfortable to say “Much as I hate to cut unemployment benefit, I simply must to cut the deficit”. I think Steve may be spending too much time with economists when he says everyone agrees that the deficit is a relatively minor issue.
One thing that Jodi does explain correctly is the ad hom attacks on both sides. Krugman does it because he is a NYT writer. I hope Steve doesn’t sink to Krugman’s level. I hope Steve doesn’t slowly turn into a writer first, economist second. Stick to your own addage and stick to the issues Steve.
>> I agree in principle, but I object in practice, because in practice nobody cares primarily about the size of the deficit. <<
Umm, except for most of the people Krugman criticizes. Well, we can't say for sure what they care about primarily, but a lot of them *purport* to care primarily about the size of the deficit, and advocate the policies they advocate on those grounds, and Krugman criticizes them on the basis of that. In other words, the very thing you say is out of scope for your whole critique because it applies to "nobody", is pretty much the definition of the "deficit hawks" that Krugman tends to criticize, such as Senator Ben Nelson in the example column you wrote about.
In other words, as right as you likely are on a lot of the facts and logic of your recent columns, you're still pretty close to 100% wrong, because you're talking about something other than what you're saying you're critiquing, and you show no awareness of that in your posts. It's kind of surreal. I don't know if you're doing it to make a rhetorical point, or because you can't believe that anyone would take the position these "deficit hawks" do because it makes no sense to you (even though it makes political sense for them), or you're eager to criticise Krugman on this point because you disagree with some part of his philosophy that's related to this issue, or you just want to play devil's advocate and troll for reactions, or something else… but whatever it is, it's surreal.
If Krugman is wrong, it's not in his logic or honestly, it's in that he may have at some point unfairly accused someone of being a "deficit hawk" when that someone actually has a more reasonable and nuanced point of view. And if you could find such examples and point out to us what that accused public figure actually talks about, that'd be more of a contribution to the debate, IMO.
The New Republic chides politicians for their “deficit-attention disorder.” Damn, that’s clever.