The last squawk of the deficit hawks

Steven Rattner has a column in the New York Times bemoaning the supposed fiscal profligacy of the rising Democratic 2020 agenda, including ambitious programs like Medicare for All, free college, and the Green New Deal. It’s a retread of the deficit hysteria from the early 2010s that bound the Obama administration’s post-recession agenda in a self-imposed straightjacket. Progressives should not put on that jacket again.

Rattner, a Wall Street financier who led President Obama’s auto industry task force, criticizes what he calls “a convenient bit of progressive dogma: Don’t worry about the fiscal impact because America’s rising budget deficits and debt levels don’t much matter.” (That’s a reference to Modern Monetary Theory, a heterodox school of economic thought gaining traction in some circles on the left by attempting to decouple taxation from government spending.) Rattner calls MMT-inflected deficit arguments a “scary drift of thought” that “should set off alarm bells for all Americans” because “[v]ast increases in debt will ultimately compromise Washington’s ability to maintain its current array of spending programs, let alone add new ones, and threaten our standard of living.”

Rattner is right that progressives are feeling increasingly uninhibited when it comes to proposing deficit-financed programs. That’s a good thing, and it’s the confluence of several factors.

The first is a rising hard-nosed progressive attitude that wants to level the political playing field by fighting like Republicans would on a variety of fronts. Republicans have repeatedly engaged in the bait-and-switch of complaining about deficit spending when Democrats are in office and then throwing fiscal hawkery out the window while in power to pass gargantuan debt-financed tax cuts. Take the transformation of White House Chief of Staff Mick Mulvaney, one of the most hysterical deficit-phobes during the Obama years, who recently admitted that deficit reduction would not make an appearance in Trump’s State of the Union address because “nobody cares” about it. Republicans have repeatedly pulled this bait-and-switch over the years, and Democrats are rightly determined to stop falling for it.

There’s also some strategic calculation behind the Democrats’ willingness to propose big new policies without a plan for generating corresponding new revenue: they’ve determined that their policies stand a better chance of advancing without being shackled to unpopular funding streams. For example, Senator Brian Schatz proposed a big debt-free public college program last year. He told Vox: “I don’t play the pay-for game. I reject the pay-for game. After the Republicans did the $1.5 trillion in unpaid-for tax cuts, . . . I just reject the idea that only progressive ideas have to be paid for. We can work on that as we go through the process, but I think it’s a trap.” Schatz and other Democrats have strategically opted to leave the pay-for details of their policies TBD so that they aren’t targets for withering attack from the very start.

There is another game Democrats can play, however. Rattner warns that “progressives argue that certain kinds of spending are, in reality, investments that will bring large dividends in the future. With interest rates still near historic lows, they contend that the returns from borrowing for these investments would greatly exceed interest costs.” It’s the progressive equivalent of the conservative argument that tax cuts will pay for themselves. Progressives can (and in my opinion, should) argue that current spending on education, income security, and other priorities will pay dividends over time, covering their own costs by raising incomes, standards of living, and future tax revenue. That’s especially true for health care reforms and spending in green energy and infrastructure: dealing with the fallout of our health care and climate crises on the backend will be far, far more costly than preempting those crises today.

There is historic precedent that progressives can point toward: the post-World War II G.I. Bill. Here’s historian Jill Lepore in her magnificent These Truths: A History of the United States:

[The G.I. Bill] created a veterans-only welfare state. [It] extended to the sixteen million Americans who served in the war a series of benefits, including a free, four-year college education, zero-down-payment low-interest loans for homes and businesses, and a “readjustment benefit” of twenty dollars a week for up to fifty-two weeks, to allow returning veterans to find work. More than half of eligible veterans–some eight million Americans–took advantage of the G.I. Bill’s educational benefits. Those who did enjoyed average earnings of $10,000-$15,000 more than those who didn’t. They also paid more in taxes. By 1948, the cost of the G.I. Bill constituted 15 percent of the federal budget. But, with rising tax revenues, the G.I. Bill paid for itself almost ten times over.

So the G.I. Bill added a massive new set of welfare benefits onto the federal budget, funding free education, subsidies for housing and entrepreneurship, and a time-bound basic income guarantee for millions of Americans. It seized upon the unwinding war mobilization to reshape the American economy by creating a broad new middle class. And by opening the doors to the middle class, the G.I. Bill produced more middle-income households, which led to higher tax revenue in the long run, paying for itself, and then some.

Many consider the G.I. Bill to be one of our country’s crowning legislative achievements. Indeed, our modern conception of middle-class America would not exist without it (both for good and for ill, given its virtual exclusion of African American service-members). Perhaps it’s time for progressives to emulate the bill’s achievements to restore the middle-class after four decades of erosion.

For Rattner, the problem appears to run deeper than merely how to finance a twenty-first century version of the G.I. Bill’s achievements. “It’s like a couple in their 40s deciding to borrow money to sustain a lavish lifestyle and then leaving the debts for their kids to pay off after they’re gone,” he writes. Analogizing federal spending to household budgets notoriously tilts the debate toward austerity. But comparing programs to reduce income inequality, guarantee universal health care, and combat climate change to a “lavish lifestyle” completely misses the base, to say the least.

The last decade of policymaking has disabused progressives of their terror of debt politics. There is no constituency for tough-choices austerity. In 2019, sniping at the progressive agenda over missing pay-fors sounds a lot like the last squawk of the deficit hawks.

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