Axios has an interview with Senator Ted Cruz (R-TX) where among other topics the idea of fiscal conservatism coming back in former VP Joseph Biden were to win the presidency. It is worth a watch and can be found here. It is pointed out that it is incredibly convenient to have such an attitude when the party occupying the White House changes. It is not really fiscal discipline at all, if it simply amounts to not letting the other party claim a legislative victory. That is just politics.
The broader issue I have with the concept of fiscal discipline, fiscal restraint, or whatever other term you want to use is that it is meaningless. It simply does not exist in any meaningful terms these days. I saw a New York Times article discussing the McConnell influence over a relief bill as appeasing the fiscally conservative base. What fiscally conservative base? No such thing exists. There are days I feel like the last fiscal conservative in America. It does not matter the president or the party. Want proof?
Perhaps the most upsetting aspect of most of these lines for the different Presidents is how close they come to a straight line. So even when a President is saying they are going to change things or announce a policy shift while in office it does not materialize in terms of the deficit. The only President with anything approaching success by this measure is President Clinton. (I am not going into divided government, scaling factors, or economic vitality in this post, it is long enough already.)
President Clinton had 38 months of budget surplus, only one more than President George W. Bush, but look at the differences in deficit outcomes. Even then President Clinton averaged a deficit of $4.5 billion over his presidency (real terms). Going through the end of the data (9/2020) President Trump is the runaway winner with an average deficit of over $120 billion per month.
Let’s get a few things out of the way. Deficits matter. At what point do they matter? Well that is a grey area. It is not the case that all countries are subject to the same rules and standards. Practically speaking the deficit will matter when it matters. When it indicates to markets that there is an unsustainable trajectory there will be consequences. This is not a Krugman bond market vigilante story as much as a crisis of confidence story.
Note that I used no specific thresholds or levels because I do not think they exist. Deficits do not need to be zero, but they also do not need to approach levels that force reporters to pull out a thesaurus because the editor is tired of them using the words “unsustainable” and “questionable”. What this suggests to me as a prudent strategy is maintenance of fiscal capacity to address crises as they happen while still giving the government the ability to manage the affairs of government (more on this in a later post).
It is unpopular but we must confront the fact that we will never solve the fiscal malaise in the United States with a strategy relying solely on spending cuts. Nor will it be the case that tax increases alone will fix this. True fiscal conservatism must confront reality. That reality is that currently the bill of goods sold to the public is that we can cut taxes and keep government programs at current levels. Essentially fiscal policy became the free lunch economists proclaimed nonexistent. Maybe the bill does not come due now, but what about future generations?