Thursday, December 2, 2010

Where the Deficit Commission Missed the Boat

The National Commission on Fiscal Responsibility and Reform hasn't issued its final proposal (that comes after a vote tomorrow on its contents). But the draft report, available at, shows that the commission missed the boat in several important respects.

End the Bush Wars. The federal deficit has been eliminated three times in the past 100 years: in the 1920s, in the late 1940s and most of the 1950s, and in the 1990s. Each instance followed the conclusion of a major war (World War I, World War II and the Cold War). Wars are expensive, and peace dividends are large. The federal budget hasn't been balanced in over a century without giving peace a chance. The deficit commission made wonky recommendations about putting national security and war spending on budgets, overlooking the fact that nations don't fight wars on a budget. War is an emotional process where combatants spend their way to ruin rather than lose (see fall of the British Empire for more information).

Our national security and military budgets are large, probably larger than the public realizes--many details are obscured in order to keep potential adversaries in the dark. The best way to reduce defense spending is to reduce the reasons for defense spending. America has no real stake fighting the Taliban in order to secure Hamid Karzai's power. And wealth, which he may be enhancing by siphoning off American aid, along with payoffs he reportedly extracts from the Iranians. American troops, it would seem, now fight and die for the greater prosperity of Hamid Karzai. The Taliban haven't tried to launch attacks on America. Al Queda (remember them?), now operationally located in Yemen, is our adversary. American forces should concentrate on the real enemy, and not fight people who would leave us alone if we left them alone.

Nor should U.S. troops maintain a significant presence in Iraq. If Iraq descends into civil war, do we really think American troops will roll out of their bases and intervene? Would the American public stand for more casualties just because the Shiites and Sunnis in Mesopotamia still don't get along after centuries of strife? Some 50,000 American troops remain in Iraq. Bring them home. It's time to end the Bush Wars. They've taken too many lives and too much money, and produced too little. The deficit commission wanted to avoid involving itself in war policy. But balanced budgets and wars don't mix. If we really want to reduce the federal deficit, we have to stop fighting wars that really don't matter to us.

Emphasize innovation, research and development, and growth. The deficit commission acknowledges that innovation, R&D and economic growth are worthy goals. But it does not seem to understand the importance of prosperity to reducing federal deficits. Earlier periods of balanced budgets enjoyed robust expansions of the economy. Growth boosts national income, and therefore tax revenues. Increasing federal cash flow may run counter to the conservative agendas of some commission members, who seem to favor doctrinal parsimony over practicality. But ideology is a poor substitute for results. Cutting and slashing federal spending simply can't reduce the deficit all that much. Boosting federal tax revenues, preferably through accelerated growth, is essential.

This is an instance where the best defense is a good offense. The deficit commission should have placed more emphasis on government policies and programs that would promote growth. More incentives and funding for research and development, including basic research, are needed. Transportation and communications infrastructure need to be repaired and improved. Greater civilian access to technologies developed for military use may offer big payoffs--the Internet and GPS are classic examples of Defense Department projects that evolved into highly valuable civilian sector systems. America's economic future rests on the efficient production and distribution of high value added products and services. The government should do more to move the nation down this path.

Deal with demographics. America's population is aging, and this changing demographic aggravates the problems of financing Social Security and Medicare. The deficit commission doesn't address the demographic question. It says nothing about family friendly policies. Raising kids is a ton of work, but it's a lot better than poverty in old age. The commission says nothing about immigration. Okay, this is a political red hot potato. But the immigration of the past 30 to 40 years is an important reason why America's demographics are still fairly sound, compared to the potentially catastrophic situations in some other industrialized nations. Immigrants are mostly young, and a well thought out policy favoring valuable workers could help significantly to keep America young, and not just at heart.

The deficit commission's parsimonious scoldings land like lumps of coal on the holiday season. Frowning a dour, parental austerity that clashes with America's heritage of optimism and faith in the future, the commission obsesses over myriad wonky prescriptions that bring to mind the over-attentiveness to detail of the Carter Administration and the national self-flagellation it seemed to encourage. In the past, America attained fiscal balance not by diving into policy minutiae but by ending wars, growing through innovation and risk taking, and absorbing the talented, ambitious and hard working from around the globe. Political reality is that many, and probably most, of the commission's proposals won't survive the legislative process. The ones that are enacted will probably leave large deficits in place. We simply can't cut our way to a balanced budget. They're like walks and singles where a home run is needed. We might as well swing for the fences.

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