A Right-Wing Conclusion: I want to close this lecture by making a right wing argument that these five rules are inconsistent and we have to drop one of them.
This right-wing argument is one that back when I was your age I pooh-poohed as nonsensical and simply silly. But it is 30 years later. I at least feel a little bit wiser. It's not that I believe this right-wing argument completely. But it has much more force with me than it did 30 years ago.
The argument comes from Nobel Prize-winning James Buchanan. He pointed out two generations ago that he didn't think that these rules were politically sustainable. If you try to enunciate the principal that cyclical deficits in downturns are good and permanent structural deficits are bad--that is just too complicated for the political system to process. If you tolerate and approve of cyclical deficits to fight downturns, Jim Buchanan argued, then you're setting the political stage for permanent structural deficits because politicians will be eager to grab the argument that the deficits that they want to run are actually good for the economy.
Allow cyclical deficits, and you make permanent large structural deficits likely. They will slow growth by crowding out investment. They might eventually lead to an erosion of confidence in the government's ability to pay back its promises--and so lead you down the road to Mad Max.
Actually, the structural deficit/structural deficit is not inherently too difficult for the political system to process. This was not an objective assessment of historical reality, but a strategic assessment of political vulnerability, and one that Ronald Reagan proceeded to begin exploiting to the hilt in order to destroy the welfare state, and thus return the majority of the citizenry to a state of permanent want, which conservatives have always thought to be the morally proper order of things.
After the 30 years of deliberate Republican fiscal irresponsibility, running huge deficits due to massive reductions in progressive taxation at the national level (while state and local taxes remained hugely regressive, and regressive payroll taxes were also significantly increased), they are positioned to move their long-term attack on the welfare state into its next phase. But it was never the political system in and of itself that couldn't tell the difference between structural and cyclical deficits. That was never the real story of what was going on. It was just the conservative cover story--nothing more.
Misleading the public on fiscal policy--among many other things--was always a key aspect of conservative strategy. The problem wasn't the system, but conservative's ability to game the system. And the solution wasn't to give up on sound fiscal thinking, but to strengthen the truth-orientation (aka "reality-based orientation") of the political system.
This is, in short, just another chapter in the age-old dispute between liberals and conservatives. Conservatives--living on Kegan's Level 3--say that we're doomed because of the nature of the cosmos and ourselves. Liberals--living on Kegan's Level 4--say, "Wait a minute. There's an app for that." And if not, Radicals--living on Kegan's Level 5--will come along and invent one.