Tuesday, August 20, 2013

For Bush Administration Head of the Council of Economic Advisors, R. Glenn Hubbard Writes on a Balanced Budget Amendment –

Logic So Wrong One Wonders if Mr. Hubbard’s Credentials Are Real

In the fantasy world that Republican economists live in an unbalanced Federal budget is the source of all of the evil in that world, and a balanced federal budget is the solution to each and every economic ill.  Writing in support of a Constitutional amendment requiring a balanced budget former Bush administration economic advisor R. Glenn Hubbard puts out such a mess of ignorance on the subject that one wonders how in the world anyone could have ever taken this man as a serious economist.

Mr. Hubbard starts out by quoting a defense official who says that debt is the greatest threat to the United States.

TWO years ago, Adm. Mike Mullen, at the time the chairman of the Joint Chiefs of Staff, said that debt was the “single biggest threat to our national security” — not some rogue nation, or terrorist group, but debt. 

Well maybe he’s right, after all everyone remembers how the national debt was responsible for the September 11 attacks.  And there is a precedent, growing national debt in the 1930's caused the Japanese to attack Pearl Harbor in 1941.

Mr. Hubbard cannot escape the fact that the deficit is falling, and falling fast, so he worries about the problem 10 years from now.

First, “the deficit is now under control” fallacy. The C.B.O. did indeed say that the average federal budget deficit would be $62 billion lower per year than was predicted before. That sounds good, but it lacks context. The C.B.O. still anticipates a 2015 deficit of $378 billion. And Uncle Sam is heading — and this is the best-case scenario — toward nearly a trillion dollars of red ink every year after 2023.

and his solution is an amendment to the Constitution that only concerns spending.

First, because reconciling expenditures and revenues would be impossible in real time, the constraint should be on expenditures only. A good rule would be this: Congress shall spend no more in the current year than it collected, on average, over the previous seven years. No more overspending in fat years and no draconian cuts to expenditures during future recessions.

Now everyone except the most ignorant of economists knows that such a policy is a prescription for disaster.  Had the above been in place then during the Great Recession there would have been massive cuts in federal spending, and that would have created a Greater Depression, greater being the operative term as that Depression would have been greater than the one in the 1930’s.  Mr. Hubbard’s policy, not debt is the greatest threat to national security.

Of course defining and implementing a Constitutional limit on federal spending is almost impossible.  The government lumps capital spending in with operating spending, something no sane organization ever does.  And what about off balance sheet spending, or loan guarantees or leases or other ways that spending is complex and not subject to simpleton rules that simpletons propose.

So no Mr. Hubbard, go back to your conservative colleagues and keep your discussion on your crackpot ideas contained within that group.  They are ignorant enough of economics to tolerate and not abuse you.  The rest of us are not so charitable.

No comments:

Post a Comment