From: kilroy@gboro.glassboro.edu (Dr Nancy's Sweetie)
Subject: US Politics and Deficits (Ian Williams's question)
Organization: Glassboro State College
Date: Fri, 31 Jul 1992 05:29:06 GMT


In an earlier article, I blamed the US deficit on Ronald Reagan, and
Stephen Klepzig replied by saying that this ignores "the tax and spend
attitude of the congress for many, many years."  I was going to e-mail him my
explanation, but then Ian Williams specifically asked about US politics and
Toni Benner wrote that

> [...] 2/3 of the budget is already locked in. In other words, these programs
> have been enacted, but the cost of them keeps going up every year.
> Therefore, we need to reexamine each one of these, but the Congress is
> balking. Also, when there was legislation to balance the budget, enough
> voted against it so that it did not pass. I can't believe that there are
> still congressmen who don't see the need for a balanced budget.  [...]  I'm
> not an expert on this, but I just get upset when Pres. Bush is blamed for
> our economic problems, when it was the Democrats who instituted most of the
> spending in the past.

What follows is based largely on my own recollections -- and when you get to
be as old as I am, those aren't very reliable.  Further, I am not an expert
on economic matters.  But I have done some investigating to figure out how we
got into this mess, and I think I've got a fairly good picture.  Those who
don't care can hit "n", or whatever it is you do to skip something which will
bore you to tears.  8'-)
                     ^---- (tear)

[ Note to Dan Graham: that was a visual joke which will probably sound pretty
  stupid on your terminal.  It loses too much in the explanation. ]

The United States government is currently operating at a tremendous deficit;
every day we spend over a billion dollars more than we collect in taxes.  How
we got here is, from what I can tell, pretty involved.

The US had a medium-small deficit in the 1970s under President Carter, and
Ronald Reagan attacked Mr Carter about it; Mr Reagan once said this:

    You and I as individuals can, by borrowing, live beyond our means,
    but only for a limited period of time. Why should we think that
    collectively, as a nation, we are not bound by that same limitation?

Mr Reagan had an idea called "supply-side economics", which is pretty complex
but I think it boils down to this:

	If you cut the tax rate, people will invest the money they keep, and
	spend more.  This will increase the total amount of income generated
	in the US, and cover the tax cuts.  That is, you take a smaller slice
	of a bigger pie.

The idea was risky (George Bush once referred to it as "voodoo economics"),
but the words "lower taxes" got everybody's attention.  For a variety of
reasons, including the promise of lower taxes, Ronald Reagan won the 1980
election.  Because President Reagan was elected by an large margin, he went
into office with a mandate: he proposed his idea to the Congress and said "I
won by a landslide, which means that the American people want to implement my
economic program."  Faced with the mandate, Congress buckled to the pressure
of the people (Mr Reagan made many phone calls to members of Congress,
canvassing them to adopt his plan).

To some small extent, the idea worked -- it gave the US economy a push, and
the total incomes of US citizens went up.  However, the increase was not big
enough to cover the cuts.  We were taking a smaller slice of a bigger pie, but
the pie only got a little bit bigger; and the slice was MUCH smaller.

After a few years, everybody agreed that there was a problem, but it wasn't
clear how to fix it.  Maybe supply-side economics just needed more time; maybe
it wasn't going to work and should be stopped immediately.  Maybe the tax cuts
weren't deep enough; but maybe they were too deep.  Since economics isn't a
"hard science" like physics and chemistry, there isn't any simple formula in
the back of textbook you can use to see what you did wrong.

Unfortunately, while the economists and politicians were arguing about what to
do, the deficit was growing at a tremendous rate.  It quickly grew to many
times the size it was during the 1980 elections (and Ronald Reagan did not
bring it up when campaigning for re-election).  In 1984, Walter Mondale said
that he would raise taxes, and that Mr Reagan would raise taxes.  The only
difference is that Mr Reagan wouldn't say so.  Mr Mondale got demolished in
the election by a bigger margin than Jimmy Carter, and Mr Reagan went back to
Congress with an even stronger mandate: "The people want my programs to be
implemented so that we can fix things."


One of the problems with this is that you can't go back and do it over.  There
was, as there always is, a lot of compromising over details of the economic
plan.  Maybe if things had been done more slowly, or more quickly, it would
have worked out.  As it is, the US is buried under debt and it is too late for
an easy answer.

Ms Benner mentioned the recent proposal for a balanced-budget amendment; this
is a fine idea (though it is rather like closing the barn door after the horse
has left), but it has a big problem:  the amendment wasn't to take effect
until 1997.  Five more years is WAY too long.  Passing this amendment would
make it appear as though something was being done, but it wouldn't actually do
anything to solve the problem.  For once, the Congress refused to just put on
an appearance.

So far, George Bush has never proposed a balanced budget.  He does not need an
amendment to do so; he can propose whatever budget he likes.  So far, he has
never proposed a balanced one.  After the President proposes a budget, the
Congress can change it before they pass it; they can edit it up and fix it as
needed.  So far, they have not changed any budget from Mr Reagan or Mr Bush
enough to balance it.

Since President Bush running for re-election, he will only talk about the
parts of the mess which appear to be the fault of Congress -- and since many
of the Congressmen are running for re-election, they will only talk about the
parts of the mess which appear to be the fault of the President.  Congress has
the ability to balance the budget; the President has the ability to veto any
budget which is not balanced.  Neither party has used the power they have, in
large part because it will make them unpopular.  Both sides will claim that it
is the other guy's fault -- this is true, but it is incomplete.  The mess is
the President's fault, but not his alone.  It is the Congress' fault, but not
theirs alone.


The problem is NOT "tax-and-spend" -- the problem is spending WITHOUT taxing
enough to cover the costs.  "Tax-and-spend" often gives a sluggish economy,
but it does NOT produce deficits (well, not huge ones).  Ronald Reagan had a
speculative idea which has not so far panned out.  Some think it should be
tried in earnest, without compromises; some think it should be relegated to
the scrapheap of history.  (I am in the latter camp, though I voted for
Mr Reagan because at the time I thought his plan had merit.)

If the Congress, or the President, were not worried about re-election, they
could do something about the deficit.  Ross Perot had a detailed and thorough
plan to eliminate the deficit, but it was going to entail some pain for
everybody.  Mr Perot must have known that he would not get elected on a "raise
taxes and cut benefits for everyone" campaign promise, and that may have had
something to do with his dropping out of the campaign.

Once in office, people want to get re-elected.  Since relatively few citizens
have any idea how big the deficit is, or how it affects them personally, or
what it means for the future, they don't vote based on deficit reduction.
Most citizens DO understand taxes, and so they vote for the part of their
pocketbook that they understand.

The two remaining US Presidential candidates don't seem to have any idea how
to solve the problem.  Bill Clinton has said that his plan will slow the rate
at which the deficit grows -- but there will still be a deficit, and it will
still be growing.  President Bush hasn't addressed the deficit in any concrete
way that I know of.  (I keep imagining two Neros standing around with fiddles
saying "Oh, the fires will go away if you ignore them.")

[ At one point, Senator Warren Rudman proposed a one-hour televised discussion
  with each candidate about deficit reduction.  Only Bill Clinton agreed to
  participate; Ross Perot and his economic advisors had not finished their
  plan yet, and George Bush gave no response at all.  (Senator Rudman has led
  the anti-deficit campaign for several years, and is one of the few people
  who is probably blameless on this issue.) ]


Anyway, the practical upshot of all this is that because Ronald Reagan had a
mandate from the voters he was able to convince Congress to go along with the
idea.  While most of our elected officials realise how bad the deficit is,
they do not want to risk losing a re-election by raising taxes and cutting
spending.  A balanced-budget amendment would have prevented the deficit if we
had had one in the 1970s, but right now it won't do anything to actually fix
the problem.

In the end, I suppose the blame lies on the people who voted for Ronald Reagan
and gave him the mandate he needed to push his idea through Congress.  (I would
not say that if I had not voted for Mr Reagan myself.)


Anyway, this is probably overly-long and I don't think the discussion should
be continued in Christia.  I'm willing to set up a mini-mailing list for
anyone who wishes to go into more detail or ask questions.

Also, as I've said, I am not an economist, and my brain is a bit rusty.  If
I have said something obviously wrong, or that someone utterly disagrees with,
drop me a line explaining the error/misconception/whatever, and I'll compile
all of them into a single list.  I'll mail that list to anybody who wants it.


Darren F Provine / kilroy@gboro.glassboro.edu
"Economy, n.  Purchasing the barrel of whisky that you do not need for the
 price of the cow that you cannot afford."
                                 -- Ambrose Bierce, _The Devil's Dictionary_
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