It’s not my position. But I would think someone would articulate it. It sounds like what Mark Thoma would advocate, for example. That is, someone could advocate:
1 A larger deficit in the short term.
2. Specific, clear measures to reduce deficits over the next ten years, by trimming entitlements and raising taxes.3. Linking (1) and (2) in a single piece of legislation.
This sort of approach might satisfy doves who complain about austerity as well as Europeans and domestic hawks who worry about the U.S. fiscal outlook, . If (2) included some serious structural changes in entitlements I might endorse it.
But my point is not whether this compromise is something I could get excited about. My point is that it represents a missing position in the media. Why are the hawks and doves more interested in trying to score debating points against one another than in achieving their objectives?
–Arnold Kling, Deficit Hawk, Stimulus Dove
What Arnold Kling suggests here about focusing more on the longer-term budget situation than immediate deficits makes a lot more sense for the US than outright austerity (Europe is another story because of the Euro). I hear Nouriel Roubini making these kinds of noises.
I suggested as much via last summer’s post Means of deficit reduction: Medicare and Social Security. I am a lot more interested in reducing Medicare costs than in cutting Social Security – and this could be done by reducing health care costs overall rather than on Medicare alone. Clearly, if we could get cost growth in healthcare paid by private insurance down, it would impact Medicare costs down.
Of course, I prefer lower spending and lower taxes to lower spending and higher taxes. And I don’t have a lot of faith in stimulus these days unless it is related to jobs because special interests have a way of getting their hands into the pot and perpetuating malinvestment.
But, remember deficits are an ex-post accounting identity. If you think of economic policy as a largely exogenous short-term variable, but perhaps a more endogenous variable in the long-term, then it makes sense to move away from the deficit talk (see my post Out of control US deficit spending for more detail). The real driver of policy has to be a conversation about the allocation of society’s scarce resources.
I am not a proponent of formulaic budget deficit targets as we see in the euro zone’s stability and growth pact. I do think some artificial constraint needs to be imposed because politicians will just run up deficits until a crisis appears. This is what has happened in Italy, Greece and Portugal where they ran deficits throughout the last decade (see here).
What is more important, however, is that Americans understand that it’s not sustainable to devote the percentage of scarce resources to healthcare or military spending that they do when other societies get by with far less. If the US reduced military and healthcare costs to the levels we see in other G-7 nations, the US budget deficit would evaporate overnight and the resources in manpower and capital could be devoted to some more efficient use.
So I say "Resource Hawk, Stimulus Dove." Perhaps promoting a dialogue in this vein is something that Thoma, Kling and Roubini can take on because everyone else seems to be shouting at each other and nothing is going to be achieved that way.