The integrity deficit

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The integrity deficit

As a candidate for president, Donald Trump promised, in an interview with Bob Woodward, that he would eliminate the debt within eight years.

TRUMP: We’ve got to get rid of the $19 trillion in debt.

WOODWARD: How long would that take?

TRUMP: I think I could do it fairly quickly, because of the fact the numbers…

WOODWARD: What’s fairly quickly?

TRUMP: Well, I would say over a period of eight years.

This, of course, was a ludicrous pledge. It would involve not only balancing the budget, something that hasn't happened since 2001, but also running up massive multi-trillion dollar surpluses each year.

As president, Trump has rapidly gone in the other direction. With Republicans in control of Congress, Trump increased the deficit from $587 billion in 2016 to $665 billion in 2017 and $779 billion in the current fiscal year.

Things get worse from here. The Congressional Budget Office projects that annual deficits will average $1.2 trillion over the next ten years.  

But now, Republicans are not in complete control of the federal government. The Democrats took back the House of Representatives and Congresswoman Nancy Pelosi (D-CA) is expected to become the next House Speaker. Pelosi has pledged to reinstate the "pay-as-you-go" rule, commonly known as pay-go. Under pay-go, any policy that increases the deficit must be offset by tax increases or spending cuts.

"We all have responsibility for reducing the debt for our children. Democrats believe that you must pay as you go. Whatever you want to invest in, you must offset," Pelosi said at a forum hosted by the Peter G. Peterson Foundation, an organization dedicated to reducing the debt.

Pelosi's plan threatens to create a dangerous asymmetry in American politics. When Republicans are in power, they pass whatever policies they want, regardless of the impact on the budget. But now that Democrats can pass legislation again, they may limit themselves to policies that can be offset by raising taxes or slashing spending.

Republicans gave the heave-ho to pay-go

One of the big new drivers of the deficit are the corporate and individual tax cuts passed by Republicans in December 2017. Those tax cuts are expected to add $1 trillion to the debt over the next decade.

Democrats were so committed to pay-go under Obama that they made it a federal law. When Democrats passed Obamacare in 2010, every cent of additional spending was offset by spending cuts and tax increases -- and then some. It reduced the deficit.

So how did Republicans pass a massive tax cut without doing anything to offset the costs? They just paired the cuts with a waiver of the pay-go rules. Problem solved.

The real causes of the deficit

The deficit in the last fiscal year can be explained entirely by Republican policies enacted since 2001. A report by the minority staff of the Senate Budget Committee found that the combined cost of the Bush tax cuts ($488 billion), the Trump tax cuts ($164 billion), the wars in Afghanistan and Iraq ($127 billion), and defense spending increases above Clinton-era levels ($156 billion) exceeded the federal deficit of $779 billion.

Without these Republican policies, the government would have had a surplus of $156 billion in 2018.

Today, the total size of the federal debt is about 80% of the U.S. economy. Without the Republican policies enacted since 2001, it would be around 30% and on a downward trajectory.

Some Democrats say hell-no to pay-go

Pelosi's position is rooted in the politics of the 1990s when positioning the party as fiscally responsible was considered a top priority.

But some Democrats are objecting to Pelosi's plan to reinstate pay-go now. New members are advocating bold ideas to improve health care, reduce the cost of college and tackle climate change. A pay-go rule could make passing these policies through the House close to impossible.

"The pay-go thing is an absurd idea now given the times and given what’s already been done to curry favor with corporate America," Congressman Raúl Grijalva (D-AZ) said in June.

Pelosi, who is still cobbling together the votes she needs to become Speaker, is listening to pay-go critics but has not yet reversed her position. She has agreed to put policies like pay-go up for debate.

Do deficits matter?

The broader policy question is whether a focus on reducing the deficit is advisable. The answer is complicated and depends on the circumstances.

In a depressed economy, there are few downsides to running large deficits and the increased spending can help the country avoid catastrophe. This was the kind of economy that Obama inherited from Bush. Paul Krugman explained in a January 2017 column:

In the depressed economy that prevailed for years after the financial crisis, government borrowing didn’t drive up interest rates, money creation by the Fed didn’t cause inflation, and nations that tried to slash budget deficits experienced severe recessions.

In an economy that is closer to full employment, like the one Trump inherited from Obama, there are downsides.

What changes once we’re close to full employment? Basically, government borrowing once again competes with the private sector for a limited amount of money. This means that deficit spending no longer provides much if any economic boost, because it drives up interest rates and “crowds out” private investment.

But that isn't to say that reducing deficits is the most important priority or that a failure to reduce deficits would create an economic calamity. Instead, the impact of increased government borrowing on private investment has to be weighed against other priorities.

While acknowledging that deficit spending isn't costless, David Leonhardt argues it's "clear that our country has some big problems, more serious than the deficit, that government spending could alleviate: inequality; outdated infrastructure; a shortage of high-quality preschool, K-12 and higher education; a shortage of clean-energy research and subsidies; and so on."

There is also a practical consideration. An actual policy of fiscal responsibility would require each political party to exercise it when in power. Democrats unilaterally imposing austerity on themselves won't reduce the deficit. Republicans have shown they are more than willing to squander any savings banked by Democrats on tax cuts and military spending.

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After lynching comments, Hyde-Smith accepts $2700 contribution from notorious racist

Senator Cindy Hyde-Smith (R-MS) has faced a barrage of criticism following the publication of a video on November 11 in which she discusses attending a lynching. "If he invited me to a public hanging, I’d be on the front row," Hyde-Smith said to a small crowd on November 2.

One person who wasn't offended: Peter Zieve, a businessman in Washington State. Zieve, the president and founder of aerospace company Electroimpact, is a notorious racist.

Zieve donated $2700 -- the maximum individual contribution -- to Hyde-Smith on November 14, three days after her lynching remarks were widely publicized.

In 2017, Zieve was sued by Washington State for discriminating against minority applicants and imposing his racist views on his employees.

The case describes Zieve's outrageous conduct. Zieve allegedly screened applicants by race, hired a nearly all-white staff, and offered employees a $1000 bonus for getting married and another $1000 bonus for having children. The stated purpose of the "procreation bonus" was to prevent the country from being overrun by minorities.

The purpose of the “marriage bonus,” and an additional “children bonus” for those employees with children, was to encourage Electroimpact employees to procreate.

In a Dec. 19, 2015 email to the entire company, Zieve stated: “The future can only be secured by building families. I will not go south on the family benefits.  Consider that an annuity. The birth rate is still low for a young group like we have. . . I believe the financial benefits are helping people to make the right decisions. Since the marriages underpin henceforth I will bring a $1000 personal check to any marriage I attend. This is in addition to the $1,000 you get in your paycheck.”

In another email, dated Feb. 6, 2015, Zieve stated: “When [our sons and daughters] choose to not repopulate and allow our wonderful country to be backfilled with rubbish from the desperate and criminal populations of the third world[,] I find that to be disgusting and I find those persons to make these decisions to be repulsive and I don’t like them around me.”

In a Oct. 2, 2015, email to the company, Zieve responded to an employee’s announcement that his wife gave birth to a girl by stating: “I note that 381,000 terrorist savages have gotten into Europe so far this year and if we don’t make more babies the light will out on civilization” and included a link to an article about the meaning of God’s mandate that Adam and Eve be “fruitful and multiply.”

Zieve is vehemently anti-Muslim and "screened out applicants that affirmatively indicated that they were Muslim, or that Zieve perceived to be Muslim based on their name, photograph, national origin and/or application."

The company hosted a "jokes" listserv which regularly demeaned Muslims. Zieve was a participant.

For example, one employee emailed: “How do you save half the Muslims? Kill the other half.”

Zieve encouraged employees’ conduct on the listserv and often engaged in similar conduct.

On Dec. 3, 2015, Zieve emailed the listserv regarding the mass killing in San Bernardino and stated in the subject line, “With the stupidity in the highest office” and in the email body stated: “we might as well lay down across railroad tracks. And they sue the states that refuse to take Syrian refugees.” When an employee noted that one of the San Bernardino attackers was born in the United States, Zieve responded to the listserv: “American born Muslims are almost as dangerous as the Syrian imports.”

Zieve encouraged employees to engage in conduct that degraded Muslims. On May 6, 2015, Zieve emailed an employee a smiley face emoji after the employee sent him an email that stated: “The winning drawing at the ‘Draw Mohammad’ art contest in Garland, Texas” and attached an image of a chalk outline of a dead body.

After an employee complained when Zieve emailed the entire company one of the emails from the "jokes" listserv, Zieve told her to leave if she didn't agree with his beliefs.

Zieve settled the lawsuit for $485,000. The company also agreed to a consent decree to curb its discriminatory conduct. Zieve later apologized for some of his conduct, but his apology was met with skepticism when he announced a run for Mukilteo city council, a town of about 20,000, in July 2017. (He lost by 33 points.)

Zieve also donated over $1 million in support of Donald Trump in the 2016 election.

Hyde-Smith faces a runoff election against Democrat Mike Espy on November 27. A demonstration in protest of her lynching remarks is scheduled to take place in front of her Jackson, Mississippi office on Friday at noon. The protesters are calling on Hyde-Smith to resign or be removed from office.

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