The hawk who came in from the cold

One of the oddest events in this year's Great American Partisan War has been the liberal conversion to deficit hawkdom. As James Galbraith notes, Dems are gazing back much too fondly at the 'golden age' of Clinton and Robert Rubin. That, in itself, is an odd bit of idolatry—Clinton never planned to become a balanced budget guy, he sort of got pigeonholed into it by Greenspan and Congress (according to Brad Delong). Moreover, we can't even say for sure that deficit reduction caused the boom. Joseph Stiglitz has argued pretty persuasively that it didn't. And even if it did have an effect, Galbraith is right that what might be good policy under certain economic conditions will not be good policy under all economic conditions:

Back in 1992, the big barrier to growth was financial. Banks were recovering from the fiascoes of the 1980s and were unwilling to lend. Businesses and households, on the other hand, were very anxious to borrow. We had a "credit crunch," which Clinton's 1993 budget and Greenspan's monetary policies helped to unstick. After that, the economy grew largely on its own, powered by business optimism and household debt. Today, there is no credit crunch. Our problem is not a shortage of lenders but fear for the future. It is the classic symptom of a creeping depression.

I'm not sure what 'fear for the future' entails, but he's certainly right in that cheap money and a short-term 'economic stimulus package' won't fix whatever structural unemployment problems we may be facing. Of course, most of Galbraith's policy suggestions—taxes on financial transactions, higher taxes on the top bracket, massive infrastructure spending—would all end in bloody murder if ever proposed. But his larger point on deficit reduction is valid.