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Republicans Know Deficits Don’t Matter (When They Control Spending)

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Republicans Know Deficits Don’t Matter (When They Control Spending)

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“No politician (has) ever lost office for spending more money.” Donald Trump reportedly relayed this message from Mitch McConnell to his staff recently, and you can see that philosophy at work in the two-year budget deal he just struck with Congress.

In exchange for putting off the debt ceiling for two years, Trump agreed to eliminate the discretionary spending sequester—automatic spending cuts authorized in 2011 but continually nullified in the ensuing decade—which translates into $320 billion in new spending. This increase is partially offset by the extension of some customs fees and Medicare reimbursement caps that maintain the status quo.

While sequester waivers have become routine, the trend lines on spending point to something really different under Trump. Barack Obama and a Republican Congress cut discretionary spending by an average of 2 percent per year in his second term; so far Trump and Congress have increased it by 4 percent every year in office. And this accounts for much the economy’s resiliency in the Trump era, alongside the tax cuts he highlights.

The Brookings Institution Hutchins Center Fiscal Impact measure shows fiscal policy contributing to GDP growth since the end of 2017 by a rising margin, peaking at 0.86 percent in the first quarter of this year, a figure that will only rise with this new budget deal. As Justin Fox points out, the shift from fiscal policy detracting from growth in Obama’s last six years to contributing to growth under Trump accounts for the entire increase in GDP since 2017.

The point here is that old-fashioned federal spending works to increase demand and boost growth. None of the negative side effects we constantly hear about—public spending “crowding out” private investment, or deficits leading to runaway inflation—have materialized since the Great Recession. We had a persistent demand shortfall, and when government finally decided to fill it, the economy accelerated. This may be a spending theory more associated with liberals, but it’s certainly assisted the last two conservatives in the White House.

You will hear Republicans come back to these declarations about the evils of government spending as soon as a Democrat takes the oath of office and occupies the White House. While Obama’s economic team did prefer pivoting to deficit reduction after the first two years of stimulus, Republicans angrily denounced his presumably profligate spending at every opportunity. They demanded the sequester, and assorted budget cuts and caps along the way. They took every opportunity to reduce public investment as soon as they took control of the House in 2011. By 2013, public investment was at its lowest level since the Truman administration, according to The Century Foundation.

Republicans, in short, adopt situational ethics about spending—stiffly opposed when a Democratic president would sign the bill, broadly in support when a Republican wields the pen. Not coincidentally, these tendencies translate into throwing a wet blanket on economic growth in the Democratic years, and pumping it up in Republican years.

Of course, GOP officials are all too happy to performatively restrict spending on the very poor—applying work requirements to Medicaid, for example, or limiting states from maximizing access to food stamps. But these should rightly be seen as social and not fiscal policies, meant to reverse allegedly unfair handouts to people who don’t vote for them. The spending itself is a means to an end, and the aggregate level rises and falls depending on which party might benefit in elections.

Democrats should not be expected to play a similar game of demanding austerity depending on the White House’s occupant. Unlike Republicans they wouldn’t harm the economy for political gain. No, they do something far worse: Acting as responsible stewards, they seek to handcuff themselves in office by forwarding deficit reduction packages, sabotaging their own economies in the process. Both the Clinton and Obama administrations paid close attention to deficits, egged on by Republican legislatures but to some degree in on the game themselves.

The current incarnation of the Democratic Party sets up more to the left of those past administrations. Still, there are a few things they could fight for more strongly. For one, discretionary budget “parity”—an equal amount of spending in the discretionary budget on defense and non-defense items—has become a sought-after goal. Another way of saying that is that the government spends as much on the military as it does on every other non-mandatory program in the budget combined. But why should that be the standard? The fight should seek to have non-defense discretionary exceed military spending by a wide margin.

Second, in this particular case, Democrats agreed to pass an emergency supplemental spending bill at the border outside of the two-year budget deal. That seems to me to be an unnecessary relinquishing of leverage. Trump very obviously did not want to engage in any brinksmanship over the budget: Pairing that to the standards many Democrats wanted for the treatment of immigrants and refugees in the border supplemental, or at least trying to do so, would have been a strong move.

The budget deal also didn’t salt the debt ceiling under the earth, which many progressives see as an unforgivable error. I don’t. Under House rules, any time a budget resolution passes, the debt ceiling is deemed lifted; this is known as the Gephardt rule after the former Democratic House Majority Leader. The Senate doesn’t have such a rule, which is why we’ve had this trouble with debt extensions this year. Win the Senate and adopt the Gephardt rule and the debt ceiling problem goes away. McConnell doesn’t willingly give away leverage; it will have to be taken.

What McConnell does engage in, like his Republican colleagues, is runaway spending as long as a Republican is president. The hypocrisy of the cries of deficit hysteria from the GOP under Obama is certainly galling. But we should heed the lessons available here. Fiscal policy works. The warnings against it have yet to come true. Democrats should not apply brakes to themselves on spending if they get the chance. And if Republicans try the same special pleading for austerity under the next Democratic president, well, that’s what nuking the filibuster is for.

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