Wednesday, June 23, 2010

Orszag the Deficit Hawk

From today's WSJ:
Peter Orszag brought to the White House sterling credentials as a deficit foe. But he will leave next month with the U.S. debt stuck above $1 trillion.

Debt, deficit, whatever!

The funny thing is that deficits are always secondary concern to spending more for all Democrats and most Republicans. As the economy has always been below its potential in real time (not hindsight), this implies that spending money now via the magic of the multiplier generates huge payoffs (if deficit financed they pay for themselves via the multiplier, if tax-financed through righteous redistribution of ill-gotten gains). While this is a common priority, it is telling that no politician would state this belief so flatly.

Orszag also co-authored (with Joe Stiglitz) the famous 2002 article asserting Fannie and Freddie's expected losses were 'effectively zero'.

But, he's got all the credentials and connections. So what if he's wrong about the big things, what's important is that he's articulate and has the singular confabulatory powers of current cutting edge economics. I'm sure he'll be a prize for any large bureaucracy.


Anonymous said...

"The funny thing is that deficits are always secondary concern to spending more for all Democrats and most Republicans."
Take a look at the Debt to GDP ratio since 1968, and the rate of spending growth during those years. Why do they point to exactly the opposite conclusion?
But you have Truthiness on your side.

The Democratic "coalition" includes socially liberal fiscal conservatives. For example, Howard Dean balanced his budgets every year. And these have been the only ones successful at getting elected nationally.

Anonymous said...

Eric, Please check out this history of debt/GDP ratio, and explain how your statement that Democrats don't care about the deficit is accurate:

Anonymous said...

He has a lousy toupee that will bring lots of laughs where ever he goes

Eric Falkenstein said...

Connecting macro or federal fiscal data to presidential party is rather tenuous. These things are affected by previous legislation (a President's budget is for the following year), congress, monetary policy, the business cycle. I think its a fair generalization to say Democrats favor a larger government spending, and are less concerned about the deficit, relative to Republicans. Not that Republicans are true deficit hawks, as most believe in the standard Keynesian model too (eg, government spending creates net jobs).