Andrew Samwick, late of President Bush’s Council of Economic Advisors, asks the right questions about President Bush’s speech last night:
Where to begin?
I’ll start by noting for the benefit of the folks working on the President’s speeches that the sentence, “It’s going to cost whatever it costs,” gives the audience no confidence in the next statement, “We’re going to be wise about the money we spend.”
I was a fan of cutting other government spending before Katrina, and I am a fan of it now. I hope that the President is right that “we can handle it.” The President will have to sort that out with the Republican leadership on the Hill, who seem to believe (quite counterfactually) that there is no more fat to trim. Leave that aside for the moment, and let’s ask the following question:
If we can handle it now, why weren’t we handling it before?
He adds:
If we have decided that rebuilding New Orleans to the tune of $200 billion is a national objective (and I haven’t seen nearly enough debate on that subject in the Capitol), then we ought to fund it by reducing our consumption of everything else. The simplest way to do that would be to impose an income tax surcharge that funds the rebuilding over a given period.
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Taxes may be bad, but deficits are surely worse. What’s the explanation for why future generations should have to pay for this one, too?
One can raise legitimate questions in principle about whether this is the type of activity for which it is appropriate to engage in deficit spending. I think a case can be made that this may be, because of the “lumpiness” and unexpected nature of the liability, that may be appropriate to smooth over a period of time (like fighting a war or investing in capital projects).
But a larger point implied here seems like a sound one to me–one problem with running chronic deficits during ordinary times or on ordinary pork-barrel spending is that it makes it more difficult to justify additional deficits in times where deficit spending is appropriate (arguably such as fighting a war or rebuilding one of the nation’s most important cities and ports). To paraphrase Spinal Tap, if you are already on “10” for deficit spending what do you do when you need that extra “push over the cliff“?
In related news, it is reported that Senator Coburn has already proposed paying for at least some of it through cuts from the highway bill:
Mr. Coburn said it was a “ludicrous claim” House Majority Leader Tom DeLay made earlier this week that he hasn’t seen ways to offset the spending with cuts elsewhere.
In his weekly briefing, Mr. DeLay said it was appropriate to borrow money to pay for hurricane relief, and that the billions of dollars in transportation earmarks should be maintained.
“My answer to those that want to offset the spending is sure, bring me the offsets, I will be glad to do it, but no one has been able to come up with any yet,” he said.
Mr. Coburn said he would “be happy to have that debate with Mr. DeLay.”
He said he has identified $74 billion in cutting room and that one place to start is the $315 million the highway bill spent for a bridge in Alaska that will reach a community of several dozen people, “who have a wonderful ferry system right now.”
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