Clinton’s Deficit Straitjacket

Recently, Clinton said the following about deficit spending (boldface mine):

Trump also said we can just print more money to pay our debt down. Well, we know what happened to countries that tried that in the past like Germany in the 20’s or Zimbabwe in the 1990’s. It drove inflation through the roof and crippled their economies. The American dollar is the safest currency on the planet. Why would he want to mess with that?

By the way, this probably will matter if you’re a scientist, but I’m getting way ahead of my self.

The problem with Clinton’s comments is that ‘printing money’ is one of the few things Trump has said (maybe the only thing) that actually makes sense (boldface mine):

But printing money — otherwise known as increasing the money supply – is a routine occurrence for governments that control their own currency. The Federal Reserve has increased its balance sheet by over $3 trillion since the financial crisis, explicitly to support the economy. (The Fed does this by buying stocks and bonds with electronic cash that didn’t exist before.)

…Even Alan Greenspan, former chair of the Federal Reserve, echoed Trump’s comments almost verbatim back in 2011, when the U.S. came close to reaching the debt limit. “The United States can pay any debt it has because we can always print money to do that,” Greenspan told “Meet the Press.”

…But deficit hawks – typically members of the economic elite who favor small government and correspondingly low taxes, and are terrified of the effect inflation would have on their investments and cash reserves — have repeatedly warned that these perfunctory monetary policy actions would lead to Weimar Germany-levels of chaos

In reality, despite the Fed’s loose monetary policy, inflation remains below target in the United States, and has been so for at least 46 months. Nevertheless, the inflation cult continues to hype discredited fears of certain disaster from printing money…

Neither case bears any resemblance to the United States, even in a nightmare scenario of a Trump presidency. But invoking Germany and Zimbabwe isn’t meant to be literally true. It’s a shorthand designed to fearmonger about the dangers of deficits. By adopting such rhetoric, Clinton also adopts this fiscal straitjacket.

I noted last year (almost to the day) that Clinton’s deficit hawkery is a really bad idea:

Any Democratic candidate who does not see the need in the current economy to engage in deficit spending either doesn’t understand what is needed or is too cowardly to fight for the right policy. Male* employment figures are still circling around the bowl. Keep in mind, the people who are still getting hit the hardest in this downturn are minority men, which should put some of the recent bold rhetoric on race in context: money talks, and, well, cost-free talk walks. As Sawikcy puts it, “I may be some kind of radical crackpot, but the points I make do not rely on any sort of radical economics.”

Don’t worry, we’ll get to the science (funding). But it should also be noted that this belief, in part, stems from revisionist history about what happened in the 1990s:

One of the arguments for balancing budgets that’s floating around is that Clinton got us a surplus, times were good, and therefore, we should do it again. Of course, things were better for some people, including those at the bottom (which is a worthwhile gain), but most of the spoils went to those at the top. As the joke went, “Clinton has created millions of jobs, and I’m working three of them.” Snark aside, the reason why Clinton was able to lower the debt was no mystery: private sector debt increased, and the trade deficit was relatively low. There was no ‘virtue’ involved, but simply the balance of accounts….

If we cut government deficits, then either the trade deficit has to drop, or we have to decrease total private savings. Put another way, if the trade deficit decreases due, let’s say relatively low energy prices, and we give people the opportunity to rack up massive amounts of private debt, then we will lower budget deficits, or even have a surplus…

So let’s look at the halcyon days of Clinton (1997-1999). Yes, the budget was in surplus (the red bar is above zero). The trade deficit was much lower than it would have been had oil prices been where they were when Clinton took office, which helps lower the budget deficit (~50% higher in nominal terms, never mind adjusting for inflation). But the key point is that private savings plunged: during the Clinton era, we took on private debt at unprecedented levels (the blue bars). A lot of people seem to have forgotten that massive increase in personal debt (especially you whippersnapers)…

On the other hand, if we look at the Great Compression–the 1950s through the 1960s–in which the middle class prospered, we see that the savings rate was high and associated with equivalently large deficits. But TEH DEFICITZ R EVIL!!! Or something.

So, now the implications for science (which I’ve discussed before). Since Clinton has ruled out any tax increases on people earning less that $250,000, has opposed significant increases on taxes that would target the rich and the wealthy, and is unlikely to cut military or intelligence spending (Clinton does love her Freedom Bombs), we’re not going to see budgets increase in any meaningful way. Basically, government funded research, especially biological research, is going to keep staggering along (and as we like to say, if you don’t solve the funding problem, you don’t ‘love science’, you’re just ogling its breasts). It’s not just basic research either: our public health infrastructure is woefully underfunded.

We should be under no illusions that a Republican-controlled House (and Clinton’s negatives are such that the control of the House won’t be in play) will pass this stuff (or most of it). But another four years of deficit hawk talking points and arguments will not help, especially when they’re wrong. And if by some chance, Democrats do take back Congress, it’s clear Clinton won’t avail herself of the opportunity to spend.

We did have another alternative by the way.

Update: Similar points are made here and here.

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