This was a very strange part of the debate last night.
I would just say this to the American people. If you believe that we can cut taxes by $5 trillion and add $2 trillion in additional spending that the military is not asking for, $7 trillion — just to give you a sense, over 10 years, that’s more than our entire defense budget — and you think that by closing loopholes and deductions for the well-to-do, somehow you will not end up picking up the tab, then Governor Romney’s plan may work for you.
But I think math, common sense, and our history shows us that’s not a recipe for job growth. Look, we’ve tried this. We’ve tried both approaches. The approach that Governor Romney’s talking about is the same sales pitch that was made in 2001 and 2003, and we ended up with the slowest job growth in 50 years, we ended up moving from surplus to deficits, and it all culminated in the worst financial crisis since the Great Depression.
The Bush tax cuts were very bad fiscal policy, and shifted wealth upwards. But budget deficits create public debt, and the 2007-2009 financial crisis was fundamentally a problem of excessive private debt. Conflating the two is an intentional strategy to impose austerity on a population. White House Fiscal Commission co-Chair Alan Simpson has pointed to Greece as a possible future for the US, if the US doesn’t begin reducing its deficit. Bowles and Simpson argue that our budget deficit is heading us towards “the most predictable economic crisis in history”. In fact, the budget deficit basically exploded because of reduced output due to the financial crisis, and the transfer of private debt to the public balance sheet.
There are many narratives of why the financial crisis happened. The only credible narrative, though, starts with banks and hedge funds manipulating the capital markets to push capital into junk mortgages. There’s a lot more than that, of course, going back to deregulation in the 1970s and 1980s, and a creation of an increasingly national credit and mortgage market in the 1990s (thanks to Clinton), as well as the political corruption underlying all of it. Private debt was exploding throughout. The public debt increase of the 2000s, though it didn’t help the problem, was at best an indirect contributor to it. But Obama doesn’t say that. Instead, he lauds Clinton’s administration for its policies.
Bill Clinton tried the approach that I’m talking about. We created 23 million new jobs. We went from deficit to surplus. And businesses did very well. So, in some ways, we’ve got some data on which approach is more likely to create jobs and opportunity for Americans and I believe that the economy works best when middle-class families are getting tax breaks so that they’ve got some money in their pockets, and those of us who have done extraordinarily well because of this magnificent country that we live in, that we can afford to do a little bit more to make sure we’re not blowing up the deficit.
Deficit hysteria is meant to hide what really happened, a private unregulated credit machine that loaded Americans with debt they couldn’t pay back. It’s telling sign that this is how Obama framed his opposition to Romney’s tax cuts. In Obama’s telling, it’s austerity, or crisis. The historical irony is that Greece is falling apart because austerity. For what it’s worth.