The campaign to save the deficit

Here's an interesting post by Matthew Yglesias on the campaign by conservatives in 2001 to save America from budget surpluses.

...the bizarre episode in 2000 and 2001 when a mainstream view among right-of-center economists was that the nation was facing a threatening situation in the form of possible elimination of the national debt. That’s right, the Clinton administration’s budgeting had not only eliminated the budget deficit, but was seen as possibly leading toward paying off all the accumulated debt of the Reagan years. And the right was afraid!

Funny, huh? Fed Chairman Alan Greenspan was one of the people worried that we'd run out of government debt. Imagine the disaster then, if America were debt-free! And as Dick Cheney said, "Reagan proved deficits don't matter."

But if America ran out of debt,... ooh, that would be so scary!

The idea was that we might pay off the national debt and then decide to put further surpluses into what we nowadays term a “sovereign wealth fund.” Specifically, the Social Security trust fund could have been transformed from an accounting rule into an independently managed fund that would hold a diversified portfolio of financial assets. This, in turn, would make it possible to fund future Social Security benefits without dramatically impacting the rest of the federal budgetary situation.

The official view on the right was that this would be a disastrous situation that led to undue government meddling and horrifying socialism. The reality, however, is that a large and diverse set of countries—from Norway to Singapore to Abu Dhabi—successfully manage sovereign wealth funds. Indeed, conservatives regularly cite Singapore’s mandatory savings approach to social insurance seemingly without noticing (or at least without mentioning) that it substantially takes the form of just this sort of publicly managed collective investment in financial assets.

Of course, they were also pushing for Bush's tax cuts, and that was probably the whole point of this argument. Among Republicans, tax cuts - especially for the wealthy - are always good. They're a magic fix-all for every situation. Is the economy booming? Cut taxes on the rich. Are we in a recession? Cut taxes on the rich. (That's pretty much how you can tell that it's magic, when it's supposed to cure everything.)

Luckily (?) we never had to worry about this. Bush cut taxes and increased spending (supply-side or "voodoo" economics) - and turned Bill Clinton's budget surpluses into record-breaking budget deficits that put Reagan's debt to shame. Oh, and then the GOP collapsed the economy, for good measure.

But I can't let this go without noting Bush's famous quote from 2001: "My plan reduces the national debt, and fast. So fast, in fact, that economists worry that we're going to run out of debt to retire." As it turned out, he was just as right about this as he was about everything else!

And now Republicans want to take us back to those days. Hard to believe, isn't it?