Godspeed, Nancy Pelosi
04 Jan '19 09:15And before the inevitable "Oh, that's just Crazy Eyes talking crazy" comes spewing out, here's economist Josh Bivens on PAYGO and deficit phobia in general:
What’s less debatable is that PAYGO really has hindered progressive policymaking in the not-so-recent past. For example, it was commitments to adhere to PAYGO that led to the Affordable Care Act (ACA) having underpowered subsidies for purchasing insurance and, even more importantly, having a long lag in implementation; the law passed in January 2010 yet the exchanges with subsidies only were up and running by 2014. This implementation lag meant that the ACA’s benefits were not as sunk into Americans’ economic lives by the time a hostile Republican Congress and administration began launching attacks on it following the 2016 elections. It is a real testament to how much better the ACA made life for Americans that it has been stubbornly resistant to these attacks. But it would have been helpful to have a couple more years to have it running smoothly, but that didn’t happen largely because the ACA’s architects wanted to meet PAYGO rules over the 10-year budget window.
Even more fundamentally, it is terrible economics to view federal budget deficits as always and everywhere bad. Making good policy in the future will require that voters be educated on this front. Why not start now? After all, our failure as a society to understand the economics of deficits and debt greatly contributed to the destructive impact of the Great Recession of 2008–09. The stakes of allowing history to repeat itself are high enough that we should take the time to quickly recap the history of how costly irrational deficit-phobia has been.
In the generation before the Great Recession, D.C.-based policymakers and analysts from both political parties cultivated an unhealthy degree of fear around federal budget deficits. This excess fear of deficits led them to miss the real dangers facing the economy as the Great Recession approached. The root of the economic crisis of 2008–09 was the deregulation that allowed an enormous housing bubble to inflate to levels guaranteed to cause a deep recession when it inevitably burst. Yet most Democratic criticisms of the economic stewardship of President George W. Bush stemmed instead around his presiding over run-ups in federal budget deficits. In 2006, for example, then-Senator Barack Obama voted against raising the nation’s statutory debt ceiling to signal his disapproval of excessively high deficits and debt. It was bad enough that excess concern over deficits blinded policymakers to gathering economic storms elsewhere. It was even worse that this deficit fear-mongering was happening while the federal budget deficit was extremely small and shrinking rapidly: the budget deficit in 2006 and 2007 averaged less than 1.5 percent of GDP—an amount that is absolutely sustainable forever.
This excess fear around budget deficits became an economic catastrophe during the recovery from the Great Recession. Despite multiple warnings that the American Recovery and Reinvestment Act (ARRA) of 2009 would not be at sufficient scale to generate a full recovery, 2010 saw a pivot away from defending the need for expansionary fiscal policy (i.e., running deficits to finance measures to support the economy) and toward prioritizing measures to reduce deficits. A prime example was in the January 2010 State of the Union address—when the unemployment rate was 9.8 percent—when President Obama said:
“But families across the country are tightening their belts and making tough decisions. The federal government should do the same. So tonight, I’m proposing specific steps to pay for the trillion dollars that it took to rescue the economy last year…Like any cash-strapped family, we will work within a budget to invest in what we need and sacrifice what we don’t…”
Why am I taking you on this extended walk down the memory lane of irrational deficit-phobia? Because it had terrible consequences. The recovery from the Great Recession was the slowest in post-World War II history, and the degree of fiscal austerity can entirely explain its slowness. The figure below shows the growth in public spending per capita in the recovery following the Great Recession compared to previous recoveries. If this public spending following the Great Recession had followed the average path of the recoveries of the 1980s, 1990s, and early 2000s, a full recovery with unemployment around 4 percent would have been achieved by 2013.
https://www.epi.org/blog/the-bad-economics-of-paygo-swamp-any-strategic-gain-from-adopting-it/
What’s less debatable is that PAYGO really has hindered progressive policymaking in the not-so-recent past. For example, it was commitments to adhere to PAYGO that led to the Affordable Care Act (ACA) having underpowered subsidies for purchasing insurance and, even more importantly, having a long lag in implementation; the law passed in January 2010 yet the exchanges with subsidies only were up and running by 2014. This implementation lag meant that the ACA’s benefits were not as sunk into Americans’ economic lives by the time a hostile Republican Congress and administration began launching attacks on it following the 2016 elections. It is a real testament to how much better the ACA made life for Americans that it has been stubbornly resistant to these attacks. But it would have been helpful to have a couple more years to have it running smoothly, but that didn’t happen largely because the ACA’s architects wanted to meet PAYGO rules over the 10-year budget window.
Even more fundamentally, it is terrible economics to view federal budget deficits as always and everywhere bad. Making good policy in the future will require that voters be educated on this front. Why not start now? After all, our failure as a society to understand the economics of deficits and debt greatly contributed to the destructive impact of the Great Recession of 2008–09. The stakes of allowing history to repeat itself are high enough that we should take the time to quickly recap the history of how costly irrational deficit-phobia has been.
In the generation before the Great Recession, D.C.-based policymakers and analysts from both political parties cultivated an unhealthy degree of fear around federal budget deficits. This excess fear of deficits led them to miss the real dangers facing the economy as the Great Recession approached. The root of the economic crisis of 2008–09 was the deregulation that allowed an enormous housing bubble to inflate to levels guaranteed to cause a deep recession when it inevitably burst. Yet most Democratic criticisms of the economic stewardship of President George W. Bush stemmed instead around his presiding over run-ups in federal budget deficits. In 2006, for example, then-Senator Barack Obama voted against raising the nation’s statutory debt ceiling to signal his disapproval of excessively high deficits and debt. It was bad enough that excess concern over deficits blinded policymakers to gathering economic storms elsewhere. It was even worse that this deficit fear-mongering was happening while the federal budget deficit was extremely small and shrinking rapidly: the budget deficit in 2006 and 2007 averaged less than 1.5 percent of GDP—an amount that is absolutely sustainable forever.
This excess fear around budget deficits became an economic catastrophe during the recovery from the Great Recession. Despite multiple warnings that the American Recovery and Reinvestment Act (ARRA) of 2009 would not be at sufficient scale to generate a full recovery, 2010 saw a pivot away from defending the need for expansionary fiscal policy (i.e., running deficits to finance measures to support the economy) and toward prioritizing measures to reduce deficits. A prime example was in the January 2010 State of the Union address—when the unemployment rate was 9.8 percent—when President Obama said:
“But families across the country are tightening their belts and making tough decisions. The federal government should do the same. So tonight, I’m proposing specific steps to pay for the trillion dollars that it took to rescue the economy last year…Like any cash-strapped family, we will work within a budget to invest in what we need and sacrifice what we don’t…”
Why am I taking you on this extended walk down the memory lane of irrational deficit-phobia? Because it had terrible consequences. The recovery from the Great Recession was the slowest in post-World War II history, and the degree of fiscal austerity can entirely explain its slowness. The figure below shows the growth in public spending per capita in the recovery following the Great Recession compared to previous recoveries. If this public spending following the Great Recession had followed the average path of the recoveries of the 1980s, 1990s, and early 2000s, a full recovery with unemployment around 4 percent would have been achieved by 2013.
https://www.epi.org/blog/the-bad-economics-of-paygo-swamp-any-strategic-gain-from-adopting-it/
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