The once and future politics of the national debt

The once and future politics of the national debt

Matthew Yglesias. 

Slow Boring.com

Aug. 9, 2021

Renewing the discussion on fiscal priorities is key to rebalancing our politics

I was at a dinner event a few weeks ago with an ideologically diverse group of people and we were talking about the usual stuff — Covid, Trump, political correctness on campus, the rise of China — when suddenly a center-right woman mentioned kind of casually that we’re going broke. Nobody really engaged with her on that point either to agree or disagree or to suggest a solution; it’s just less engrossing than this other stuff.

And to be clear, when it came to my turn to talk I didn’t address the debt question either.

But in response to my post on means-testing, a well-regarded conservative policy wonk whose spot I won’t blow up wrote me to say we need more aggressive means-testing of things like Social Security and Medicare because “we’re going broke.” I mention this because when Mitch McConnell says Republicans won’t vote to raise the statutory debt ceiling he’s obviously not entirely on the level. But while there is a hefty dose of Republican Party hypocrisy on fiscal issues, it’s not all hypocrisy.

Republicans, in other words, really are the party that is more cavalier about adding debt. But they are also the party that is more animated by concerns about the debt. I think this is less because of big-picture theoretical issues about fiscal sustainability than because of basic budget politics. If you had to do a crash austerity program, Democrats would propose taxing the rich to fill some or all of the fiscal gap. That’s probably less popular in practice than the most naive readings of the polls would suggest. But it’s still pretty viable. Republicans, by contrast, have absolutely nothing they could propose that works at all.

So conservatives are both afraid of rising debt and afraid of saying what they think we should do about rising debt.

Conservatives haven’t changed their mind

Donald Trump, famously, got Republicans to stop running on cuts to Social Security and Medicare. He also promised not to cut Medicaid. But then once in office, he backed Affordable Care Act repeal bills that included huge cuts to Medicaid, and those bills were incredibly unpopular.

Ever since then, Republicans have mostly done a good job of not talking about the government’s biggest, second-biggest, and third-biggest programs. Instead, you’ll hear a lot about whether or not some federal grant program somewhere may or may not lead to someone reading an old issue of The New York Times Magazine. Elise Stefanik even did a tweet implying (though critically, not actually saying) that she’s against cutting Medicare and Medicaid.

Now the reality is that Stefanik, back before she got elected to Congress, was the policy director for the Republican Platform Committee in 2012 which put out Paul Ryan’s plan to turn Medicare into an increasingly stingy voucher program. Her votes in her earlier years in Congress were consistent with that agenda. And as best as I can tell, this continues to be what conservative policy people think we should do.

The Heritage Foundation, for example, has these little issue briefs. On Social Security, they call for making annual cost of living increases less generous and also for raising the retirement age. They also call for, in non-specific ways, cuts to both Medicaid and Medicare. It’s sort of hard to find James Capretta’s proposal for cutting Medicare on the American Enterprise Institute website, but it’s there.

Newer post-neoliberal conservative operations like Oren Cass’s American Compass do’’t explicitly call for these cuts. But they don’t actually have any policy writing on these programs. They do have a series of op-ed-style pieces called Edgerton Essays that “feature the perspectives of working-class Americans on the challenges facing their communities and families and the debates central to the nation’s politics.” One of them by Nancy Merical complains that her Social Security benefits are too low which she explains in terms of “now I hear my government wants to pay out more to illegal immigrants who have never paid a dime in taxes than to the widow of a man who paid thousands of dollars in taxes over the years.”

She may or may not have heard this (people say a lot of stuff), but the reason American Compass does not have a plan to make Social Security widow benefits more generous by cutting undocumented immigrants off from benefits is that this isn’t true. Whoever told Merical this is lying. Famously, Donald Trump was really good at taking advantage of people and ripping them off before he became a politician, and that’s what this kind of welfare chauvinism politics is — a way to exploit people’s lack of sophistication about federal politics in order to harm them.

The point is there are two factions on the right with regard to retirement programs — those who quietly want to cut them and those who don’t want to talk about it. There’s no faction that’s building an argument for preserving them.

Republicans believe in message discipline

I’m not going to tell you that Democrats’ hearts are pure as the driven snow and they would never lie or mislead. But what you see on the right is a strong belief in the virtue of message discipline that does not exist on the left.

If big money conservative donors thought about politics the way major progressive funders do, the fact that Republican leaders aren’t constantly talking about cutting Medicare, Medicaid, and Social Security would be a huge problem. You would have activist organizations whose mission is to “demand” that politicians sign on to these ideas. And lots of safe seat members would do so (why not?), raising pressure on members in more marginal districts to come out in favor of cuts. The activist groups’ deliverables would be placed op-eds about the importance of cutting Medicare, getting elected officials to tweet about cutting Medicare, and going on television to talk about cutting Medicare.

Some people would say that raising the salience of a very unpopular position is going to just make Republicans lose seats and set back conservative politics, but the people who say that would get scolded about how the only point of politics is to do big things so if you aren’t out there loud and proud advocating for toxically unpopular positions, you’re a bad person.

Then in response, moderate Republicans who want to distance themselves from that kind of politics would need to affirmatively say something to do the distancing. There would be internal fights, and a certain bloc of Republicans would be the ones who are against cutting Social Security, Medicare, and Medicaid.

But because conservatives have not had their brains devoured by whatever worms got into the minds of progressives, they don’t do this. There are simple mechanisms of trust that Republican Party politicians are committed to opposing tax increases and they should say or do whatever they have to do to win elections and try to keep taxes low. But at a certain point, it seems like the biggest government programs can’t just grow and grow forever without taxes going up commensurately.

Obama’s mistake — preemptive action

This is where past Democratic Party fiscal responsibility has been so damaging.

In his book “Crashed,” Adam Tooze details very persuasively that as mainstream Democrats geared up for the 2008 campaign, they very sincerely believed that George W. Bush’s policies were putting the country on course for a fiscal crisis. That’s an opinion they formed before the housing slump that started in 2007 and before the financial crisis that unfolded in 2008. Since these are both serious economic problems and “fiscal” and “financial” sound very similar and have the same etymology, it’s easy to just sort of continue on auto-pilot and mix these ideas up.

But what Democrats thought Bush was doing was bringing the U.S. government to a point of insolvency where interest rates would spike, crushing private investment. What instead happened was a bunch of actual or potential bank failures that crushed demand for private investment.

One good way to think about the difference between what Democrats expected and what actually happened is to look at the value of the dollar. During most of Bush’s presidency, the value of our currency was sliding and Democrats saw this as a harbinger of things to come. In the moment of crisis, people would bail on the dollar in favor of more responsibly managed currencies like the euro. At a minimum, savers in developing countries and natural resource exporters would no longer look to the dollar as a safe haven. And America would need to take decisive action to address this capital flight.

But in the crisis we got, the value of the dollar soared. It then came back down to earth when the panic was done, but there was no crisis of confidence in American currency.

Obama’s team recognized that the situation had changed and moved to push for a fiscal stimulus program. But you couldn’t turn the entire battleship of Democratic Party fiscal thought that quickly. Congress cut down the size of Obama’s request. And Obama didn’t even attempt to structure the Affordable Care Act to deliver additional stimulus; he insisted on making it deficit-reducing. After the 2010 midterms, they were greatly constrained by House Republicans. But the point is Democrats in Congress were already pivoting to deficits before they lost control.

Once Republicans controlled the House, we started getting a lot of austerity budgeting. Progressives complained about this plenty, but realistically the only way to avoid it would have been to strike a deal with Republicans to cut taxes on the rich. At the time, though, progressives were pushing Obama to be even more aggressive in raising taxes. Bernie Sanders’ first great viral internet moment was a talking filibuster protesting the temporary extension of some tax cuts. The mods and progs had different ideas about budget politics, but objectively everyone was pulling for fiscal consolidation.

No more sucker politics

The result of this is that when Trump took office, the interest rate and currency market situations were benign and there was nothing stopping him from cutting taxes and raising both military and non-military discretionary spending without touching Social Security or Medicare.

Just as Clinton’s fiscal responsibility paved the way for Bush, Obama’s paved the way for Trump.

This is a game that Biden-era Democrats have so far refused to play, and I hope that they continue to refuse. I am not interested in committing myself to any strong doctrinaire theories of “deficits don’t matter” as a question of principle. But at the moment, interest rates are low. If an actual problem emerges, Democrats should move to solve it with their go-to solution — taxing the rich — and they should welcome a debate about the conservative alternative of toxically unpopular spending cuts.

But what they absolutely must not do is repeat the two Obama-era traps of preemptive fiscal consolidation and of attempting to depoliticize the debate via a bipartisan commission. The dream of Republicans is to take this big consequential issue off the partisan agenda so that electoral politics can just be about Critical Race Theory. Bringing the fiscal debate back into view is key to rebalancing the political system. I’m not going to go so far as to say that Biden ought to deliberately provoke a debt crisis. But this is kind of like a scene in an action movie where the good guy is driving a car but the bad guy is sitting in the passenger seat and they’re fighting while driving. Nobody wants the car to run off the road and slam into a tree. But the good guy has his seatbelt on and the bad guy doesn’t. So slamming into the tree might be your best option.

The debt ceiling gambit

Democrats are supposedly going to move a reconciliation bill to advance some of their key spending priorities. That would be a natural vehicle for raising the debt ceiling, but leaders say they’re not going to do that and want to raise the debt limit with a filibuster-able, 60-vote bill. Mitch McConnell says he won’t agree to that. And I’ve seen a lot of folks express puzzlement over why Democrats would bother trying.

I think it’s because Democrats want to push McConnell to name his asking price for a debt ceiling increase. If the debt is too high and McConnell won’t raise the ceiling, what’s his plan to reduce it? Tax hikes? Medicare cuts? I think this gambit probably won’t work, but it’s not a crazy idea to try.

As for the reconciliation bill itself, I would urge Democrats not to worry about fully offsetting all their new spending. Funding the tax police is an important idea on the merits along with raising revenue. But there’s no particularly urgent need to raise tax rates right now with interest rates this low. If Democrats add trillions in spending without offsetting it, that might cause rates to rise. But if that happens, you can raise taxes then. And if not, then not.

The key thing is that the elderly share of the population is rising, so the cost of Social Security, Medicare, and Medicaid is also rising. Democrats have some disagreements among themselves as to what should ultimately be done about that, but they all agree that higher taxes on the rich is part of the answer. Republicans uniformly disagree. And the sooner we can get that reality back front and center in the national debate, the healthier our politics will be.