Trump Budget: Reaganomics + Military Keynesianism = Deficit Boom
Thursday, February 8, 2018
SHARMINI PERIES: It’s The Real News Network. I’m Sharmini Peries coming to you from Baltimore. On Thursday, the US Congress is expected to pass a $300 billion budget increase over the next two years. A little more than half of that increase will go towards the Pentagon, and the rest will go towards discretionary non-defense spending. So-called “deficit hawks” in the Republican party are outraged because the deal would add $1.5 billion to the federal debt over the next decade. Meanwhile, progressive Democrats are also outraged because the deal completely sidestepped the legalization of the status of the Dreamers, or undocumented immigrants who arrived in the US as children. Joining me now to analyze the budget deal, particularly its defense aspect, is Bob Pollin. Bob is Professor of Economics and Co-Director of the Political Economy Research Institute, PERI, at the University of Massachusetts in Amherst. Welcome back, Bob.
ROBERT POLLIN: Thank you. Thank you for having me on.
SHARMINI PERIES: So, Bob, the budget agreement will provide $80 billion in new defense funding for 2018 and $85 billion in 2019. Where is this additional spending going? Who will it benefit? What do you make of this kind of huge defense budget that Trump keeps increasing?
ROBERT POLLIN: Well, you know, we’ve seen this show before. This is Ronald Reagan mark two. Ronald Reagan’s strategy for economic policy was tax cuts for the rich, increase defense spending, to hell with the deficit. The deficit is going to increase. Then, once the deficit increases, of course, then the Republicans could say, “We can’t afford all this social spending.” As we’ve talked about before, there’s only three big pots in the whole federal government. One is defense, one is healthcare. The other one is pension and social security.
If we’re going to increase the military and we’re going to cut taxes, then yeah, the budget deficit will increase. That’s military keynesianism. Then, what we have is a situation where the Republicans will come back and say, “We can’t afford all this money for healthcare,” which they’re already saying. I mean, Paul Ryan has been saying this, “Well, next year we’re going to go after healthcare. And so, this year we’re going to delay that debate, let the deficit go to hell.” That’s basically where we are.
SHARMINI PERIES: Isn’t obvious that this kind of money is being pumped into the economy just ahead of the 2018 elections and the 2020 elections. So, boosting the economy in this way will obviously have electoral benefits for the Republicans.
ROBERT POLLIN: Well, again, that’s exactly what happened with Reagan. Reagan, in 1982, we were in a recession. That’s not comparable to today, but we do have this stock market situation rattling the economy, and it may well be that the Republicans say, “Well, if the stock market isn’t going to prop us up, we need something else to prop us up, and so we’re going to inject spending into the economy, not worry about the deficit.” Like in 1984, Ronald Reagan got re-elected and the term was, “It’s morning in America again.”
Well, what made it morning in America again was the biggest fiscal deficit increase, deficit spending, then had ever occurred at that point in peacetime. It does work. If the government spends a lot of money, that’s money in people’s pockets. It will work. The issue though is then over time, yes, we have this ballooning of the deficit, and how do you deal with that? Well, yes, you could raise taxes, but we know damn well the Republicans aren’t going to raise taxes on rich people, so then they’re going to say, “Oh, we have to cut social spending because the deficits are unsustainable.”
SHARMINI PERIES: All right, Bob. Now, for a very long time on The Real News you’ve been arguing that government spending and deficit spending is a good thing for the economy, because it’s a stimulant. You’ve got what you’ve been asking for, a huge stimulant between the spending and of course, the tax cuts that Trump is also administering in terms of policies. How is this different from what you’ve been advocating?
ROBERT POLLIN: Well, because the two central features of the Trump program, again, roughly parallel to Reagan. I don’t want to overdo the parallels, but roughly parallel to Reagan. The two things through which he’s conducting the stimulus policy are redistribution upwards, so tax cuts for the rich. Yes, there are some small tax cuts for everybody else, which will go away in a few years, but basically it’s permanent tax cuts for the rich and increased military spending. That’s exactly the Reagan formula.
Now, that’s not my formula. My formula is more egalitarian distribution and more spending on social spending and infrastructure, in particular, the green economy. Of course, those things aren’t happening. It’s not just deficits. I don’t say deficits are actually good or bad per se, it depends of the circumstances, and the economy, and it depends on what the money is being used for. In this case, the money is being used to prop up the military and to cut taxes on rich people.
SHARMINI PERIES: Bob, Trump called for an elimination of the so-called, “sequester,” which required the budget bills that increase the deficit to have a super majority of 60 votes in the Senate. What do you expect the consequences of this to be in terms of a decision, and then of course, the elimination of the sequester?
ROBERT POLLIN: Well, the sequester was this deal that was made under Obama. At that time, the Republicans were very concerned about holding back spending because they knew with a Democratic President you’d get more social spending. The sequester would put limits on how much you could increase, spend, both military and domestic spending. Now, Trump wants to get rid of that in order to make it easier to expand military spending.
SHARMINI PERIES: Bob, I thank you so much for joining us.
ROBERT POLLIN: Okay. Thanks a lot, Sharmini. I’ll talk to you soon.
SHARMINI PERIES: Okay.
ROBERT POLLIN: Bye.
SHARMINI PERIES: Thank you for joining us here on The Real News Network.