Monday, October 19, 2015

Ornithology: What is a "deficit hawk"?

by Bill McBride on 10/19/2015 01:27:00 PM

Nick Timiraos wrote yesterday in the WSJ: Debt, Growth Concerns Rain on Deficit Parade

The U.S. budget deficit is lower than before the 2008 financial crisis. But the good news is tempered by concerns on two fronts, one about the nation’s debt load and the other about the economy.

Deficit hawks are concerned that the improvement will lead both parties to overlook the red ink set to rise later this decade from a surge in spending on health care and retirement benefits for the baby-boom generation.

They worry that while the deficit is at the lowest level since 2007, the U.S. has added nearly $8 trillion in debt, an increase of 140%. That has nearly doubled the nation’s debt-to-GDP ratio, which stands near 73%—based on federal debt held by the public—and isn’t projected to fall in the coming years.
I'd like to see the definition of a "deficit hawk"!

I'd think a true deficit hawk would be truly concerned about, uh, the deficit.  So they'd support both tax increases1 and spending cuts to reduce the deficit.    They'd oppose policies that increase the deficit (like the Bush tax cuts, and the war in Iraq).  They'd also be concerned about policies that led to the financial crisis and a deep recession - since the deficit increases during a recession.

Maybe I'm talking my own position since I opposed the Bush tax cuts (that created a structural deficit).  I opposed the Iraq war.  I frequently talked to regulators about lax lending in real estate (and posted some of those discussion on this blog in 2005) that led directly to the financial crisis and large deficits.  And I support both intelligent tax increases and spending cuts.

Unfortunately, my experience is that most people who claims to be "deficit hawks", are really pushing a different agenda.  I wish Timiraos would provide a few examples of deficit hawks!

Also the "red ink set to rise later this decade" is expected in increase the deficit from 2.5% of GDP to about 3.1% in 2020.

1 Note: Some people like to focus on "growth" to reduce the deficit, and they tend to focus on tax cuts to boost growth. However, all data and research shows that at the current marginal rates, tax cuts do not pay for themselves and lead to much larger deficits.