Republicans used to profess to be extremely worried about the budget deficit. Many of us suspected at the time that they were full of it. And one big thing we’ve learned this week is that they were, indeed, full of it.
Back in 2012, Senate Majority Leader Mitch McConnell called the budget deficit “the nation’s most serious long-term problem.” That same year, House Speaker Paul Ryan called it a “serious threat” to the economy. They were full of it.
Not just in the narrow sense that they both went on to enthusiastically endorse a $1.5 trillion tax cut late last year. Nor even in the somewhat broader sense that the real cost of that tax cut is much higher than $1.5 trillion when you consider the various accounting gimmicks and bad-faith phaseouts that were used to squeeze it under that figure.
Even under the weird linguistic conventions of American conservative politics where deficits caused by tax cuts don’t count as real deficits, today’s budget deal — a big, multi-billion dollar increase in military spending “offset” by a nearly-as-large increase in non-military spending — gives up the game entirely. They don’t care, on any level, about the size of the federal budget deficit.
In some ways this is healthy, since deficit alarmism was never a good idea on the merits. But in other ways, they’ve picked a terrible time to own up to not caring — the great wheel of macroeconomic history has finally spun back to a position where deficits are plausibly an actual problem for the economy, albeit a modest one.
The pivot to deficits
To actually believe that Obama-era Republican leaders cared about the federal budget deficit required one to completely ignore those exact same leaders’ prior conduct during George W. Bush’s administration.
When Bush was president, he signed two rounds of massive tax cuts, oversaw a large increase in military spending, expanded Medicare and Supplement Nutrition Assistance Program benefits, hiked education spending, and didn’t come close to offsetting any of that with cuts anywhere else. McConnell, Ryan, and other prominent Obama-era Republican leaders like former Speaker John Boehner were enthusiastic proponents of all this. And, of course, they all duly backed the 2008 bank bailouts when the economy came crashing down around our heads.
With Bushonomics completely discredited by 2009, however, the GOP was clearly in need of a brand refresh.
What they came up with was the “Tea Party” and the insistence that the big lesson of the Bush years was that Republicans had moved away from conservative economic orthodoxy. Deficit fearmongering and stringent anti-spending ideology were in, devil-may-care tax cutting was out. That — at least in theory — is why Republicans opposed Obama’s stimulus bill in 2009, why they opposed extensions of a payroll tax holiday, and why they insisted on creating the budget sequester in exchange for lifting the debt ceiling in 2011.
All this made the budget deficit lower than, economically speaking, it should have been at a time when the unemployment rate was very high and the Federal Reserve was committed to holding interest rates at zero. Today, macroeconomic conditions have reversed themselves — and so have Republicans.
Well, whatever, nevermind
Then Donald Trump won the 2016 election, and the Tea Party rebrand became obsolete.
Republicans were no longer stringent fiscal hawks they were instead “populists” and the Freedom Caucus is now primarily focused on anti-immigration causes. Just like magic, deficits were good again. You’d never get a giant, unpopular corporate income tax cut passed if you offset it with spending cuts. Instead, you attach it to some smaller, temporary middle-class tax cuts and watch the deficit soar. Want more money for the military? Simple — agree to Democratic demands for more domestic spending!
This will not, in the short-term, be any kind of economic disaster.
But in macroeconomic terms, the timing really is unfortunate. Back in 2012 with the Fed holding interest rates at zero and the unemployment rate extraordinarily elevated, bigger deficits would have put people back to work faster and strongly served the national interest. Six years later with the unemployment rate considerably lower and the Fed in the process of raising interest rates, a bigger deficit will — at best — simply accelerate the Fed’s moves somewhat.
And it’s at least possible that the labor market has really run out of slack (or at least that it will do so soon) and deficits will become genuinely counterproductive for arguably the first time in the 21st century. At a minimum, there’s absolutely no economic theory under which 2018 deficits are more benign than 2012 deficits.
Exactly how much less benign, we’ll just have to see. But at a minimum, the next time the economy falls into recession and really needs bigger deficits let’s not be played for fools again.