Deficit Hawks, Deficit Doves, and Deficit Owls
Congratulations to Professor Stephanie Kelton at UMKC for giving us a new addition to the deficit aviary. Until now the media only had mind space for “deficit hawks” and “deficit doves.” Deficit hawks include folks like Mike Pence, and Judd Gregg, who insist that the Government run deficits only for wars, and tax cuts for rich Americans, but insist on paying for extensions of unemployment insurance, health care reforms, infrastructure, jobs programs, educational programs, transportation projects, and any Government spending for regular folks with taxes.
Deficit doves include folks like many, but not all, Democrats in Congress, Paul Krugman, Joe Stieglitz, Dean Baker, and all the signatories of this recent Sir Harold Evans, "Stimulus Now" petition, who want to run deficits to end the recession but who say:
"We recognize the necessity of a program to cut the mid-and long-term federal deficit…"
Now, on the occasion of a letter from Paul Davidson, James K. Galbraith and Lord Robert Skidelsky, in reply to the Evans petition, also signed by many very prominent “deficit dove” economists, the UMKC folks say:
”A number of bloggers on this site were asked to support their deficit-dove petition. We declined, and so did the three wise owls who wrote the following statement, which first appeared at New Deal 2.0.”
The wise “deficit owls” supported “the central objective of the letter — a full employment policy now, based on sharply expanded public effort.” But they disagreed profoundly with the idea that there is any medium, or long-term deficit problem at all. Because:
”. . . apart from the effects of unemployment itself the United States does not in fact face a serious deficit problem over the next generation, and for this reason there is no "necessity [for] a program to cut the mid-and long-term deficit.”
”On the contrary: If unemployment can be cured, the deficits we presently face will necessarily shrink. This is the universal experience of rapid economic growth: tax revenues rise, public welfare spending falls, and the budget moves toward balance. There is indeed no other experience in modern peacetime American history, most recently in the late 1990s when the budget went into surplus as full employment was reached.”
The deficit owls say that rapidly increasing health care costs are a problem, but one faced by both the private and public sectors whose solution is a matter of health care policy and not budget policy, and they object to cutting the public costs alone as “. . . just a way of invidiously targeting the elderly.” They also say that Social Security is an extremely successful “. . . transfer program and indefinitely sustainable as it is.”
They also say that:
”The long-term deficit scare story plays into the hands of those who will argue, very soon, for cuts in Social Security as though these were necessary for economic reasons.”
And then finish with:
”We call on fellow economists to reconsider their casual willingness to concede to an unfounded hysteria over supposed long-term deficits, and to concentrate instead on solving the vast problems we presently face. It would be tragic if the Evans letter and similar efforts - whose basic purpose we strongly support - led to acquiescence in Social Security and Medicare cuts that impoverish America’s elderly just a few years from now.”
This exchange defines very clearly the distinction between “deficit doves” and “deficit owls,” as did the recent exchanges here and here, between Paul and Jamie Galbraith, supported by Scott Fullwiler, L. Randall Wray, Marshall Auerback, and one “chartalist,” and also by Warren Mosler and myself elsewhere.
Deficit owls, believe that there is no structural deficit, and that most of the present deficit will go away when the recession ends. They also believe that in times of unused productive capacity like these, deficits are caused by the state of the economic system and that explicitly managing them by taxing more or spending less will not improve its condition, but only result in a downward economic spiral making conditions still worse. On the other hand, if real economic problems like unemployment, alternative energy capacity and production, infrastructure renewal, education, and industrial innovations are addressed through Government spending, then aggregate demand spurring private sector business activity ending the recession will result, and the deficits will largely go away except for those resulting from excessive private sector saving in the economy. In addition deficit owls believe that in a fiat money system, where there is no debt in foreign currencies, and no “peg” to such currencies, solvency is never a problem for the Government, and that while inflation partly caused by Government deficit spending can become a problem in such a system, this can only happen when full employment is achieved.
So, now we have three clear deficit hawk, deficit dove, and deficit owl positions that have very different implications for public policy. Until now, our friends in the MSM have recognized only the first two positions in discussing budget policy. But now that the third “deficit owl” position finally has an evocative name that is easy to remember, maybe our very busy MSM columnists and editorial writers will add “owls” to their narratives about hawks and doves in budget policy debates. After all, a narrative including “owls” outsmarting both “hawks” and “doves” may enliven their budget stories enough to get people to read, listen to, and watch them. In fact, it may even make the subject interesting enough that they themselves can begin to see that both hawks and doves make big, big, economic messes, and only owls can be trusted if we want policies that will bring back economic opportunity and hope to most of the American people.