Is the Devil in the Density?

Intensification of the Covid-19 pandemic prompted politicians from all over the country to proclaim the obvious– the districts they represent are not New York. Usually, the denial was issued to justify weak social-distancing policies or moves to “reopen” their economies.

Kay Ivey, Governor of Alabama, defending her resistance to a statewide stay-at-home order, said “We’re not New York. We’re not even Louisiana.” South Dakota Governor Kristi Noem defended her policies with “South Dakota is not New York City.” California’s Gavin Newsome observed, “We’re not New York…there are very different conditions in the state of California.”

Even New Jersey Governor Phil Murphy felt compelled to note that his state is not New York–it’s worse! Murphy: “You know, we’re not New York. Somebody reminded me yesterday that if you drove from New York City to the Canadian border, it’s a 10-hour drive. It’s hard to get more than a three-hour drive in New Jersey.”

Sometimes the not-New-York disclaimer has a moralistic tinge or political edge, but more often it seems to be an allusion to New York’s assumed higher risk profile, and more specifically, to it’s greater population density. Vita G., a beachgoer in Florida, observed “I think we’re doing the right thing and we’re not high risk. We’re not New York.” Matt Tompter, a brewer and restauranteur in Anchorage, offered “We’re not New York City….the reason Alaska is able to open right now is we are naturally socially distanced.” David Morgan, Sheriff of Escambia County, Florida, was even more explicit. “We’re not New York City. We don’t have the density of population they have there.” Even New York’s Governor Cuomo bought into the density argument: “Why New York? Why are we seeing this level of infection? It’s very simple: It’s about density.”

From Governors on down, people in other parts of the country seem to think that because their home states or towns have a lower population density than New York City, their risk of a coronavirus outbreak is lower. Is that so? And does the new age of pandemic abruptly end the era of Superstar Cities?

The initial outbreak of the pandemic, with its epicenter in New York City, certainly triggered an early rush to blame density as a principal risk factor. In March, The New York Times ran an article entitled “Density is New York City’s Big ‘Enemy’ in the Coronavirus Fight.” Joel Kotkin, in the Los Angeles Times, wrote “…employment and housing patterns and transit modes appear to be very significant, if not decisive, factors” behind the differing coronavirus death rates in LA and NYC, contending that the pandemic vindicates LA’s sprawl. In USA Today, Glenn Harlan Reynolds simply concluded that “density kills.”

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That Didn’t Take Long

The ink was barely dry on the Senate’s bill to provide an additional $484 billion of Covid-related economic relief when Mitch McConnell fired the first volley of the next battle. On April 21 he appeared on Fox News host Bill Hemmer’s show and said:

“What I’m saying is we’re going to take a pause here, we’re going to wait at least until May 4th which is the time we’re going to have everyone back in the Senate and clearly weigh, before we provide assistance to states and local governments, who would love for us to borrow money from future generations, to make sure that they have no revenue losses. 

“Before we make that decision, we’re going to weigh the impact of what we’ve already added to the national debt and make sure that if we provide additional assistance for state and local governments, it’s only for coronavirus related, coronavirus related matters. 

“We’re not interested in solving their pension problems for them, we’re not interested in rescuing them from bad decisions they’ve made in the past. We’re not going to let them take advantage of this pandemic to solve a lot of problems that they created for themselves, and bad decisions they made in the past.” 

His office then issued a press release repeating those comments under the heading “Preventing Blue State Bailouts” and the next day he appeared on Hugh Hewitt’s radio show and said:

“I said yesterday we’re going to push the pause button here, because I think this whole business of additional assistance for state and local governments needs to be thoroughly evaluated. You raised yourself the important issue of what states have done, many of them have done to themselves with their pension programs. There’s not going to be any desire on the Republican side to bail out state pensions by borrowing money from future generations.” 

He went so far as to make the suggestion that in lieu of aid, states should consider bankruptcy:

“I would certainly be in favor of allowing states to use the bankruptcy route. It’s saved some cities, and there’s no good reason for it not to be available.”

Trump then jumped into the fray, playing both sides of the issue as usual. First he told New York’s Governor Cuomo that he was very open to federal budget aid to states, but several days later tweeted: “Why should the people and taxpayers of America be bailing out poorly run states (like Illinois, as example) and cities, in all cases Democrat run and managed, when most of the other states are not looking for bailout help? I am open to discussing anything, but just asking?” Apparently, conservative media played up the blue-state bailout angle enough to trigger his usual polarize-for-political profit instinct.

Perhaps the most odious comment came from Florida Senator Rick Scott, who said: “It’s not fair to the taxpayers of Florida. We sit here, we live within our means, and then New York, Illinois, California and other states don’t. And we’re supposed to go bail them out?” Considering that Scott’s Columbia/HCA private hospital chain, which he founded and ran, paid $1.7 billion in settlement fines for Medicare and other fraud, it’s a bit galling to hear him talking about what’s fair to taxpayers and what’s not. Moreover, New York State has the largest “balance of payments” deficit with the federal government while Florida has one of the largest surpluses (California and Illinois are roughly in balance).

Of course, the push back against this nonsense was swift. Cuomo slammed McConnell as “reckless” and “irresponsible,” Connecticut Senator Chris Murphy slammed Scott, and retiring Republican congressman Peter King called McConnell “the Marie Antoinette of the Senate.” Paul Krugman, Eric Levitz, and Paul Waldman piled on. Nancy Pelosi said flatly: “We will have state and local and we will have it in a very significant way.”

After making aid to state and local governments a central demand of their negotiations over the third COVID disaster relief bill, it was surprising and disappointing to many Democrats that Chuck Schumer and Pelosi agreed to a bill that included none. With pressure mounting to refund the small business relief program, the Democratic leadership apparently prioritized other demands, including financial aid to hospitals, aid to states and cities for coronavirus testing programs, and set-asides of small business loan program funds for small financial institutions and businesses, while betting that they could win a subsequent battle for state and local fiscal aid. Indeed, there appears to be significant Republican support for state and local aid, even if many Republican officials are laying low so as to not cross Trump and McConnell. In addition to Peter King, for example, Representative John Katko (R-NY) said that phase four had to protect state and local governments, and Republican Senator Bill Cassidy (R-LA) cosponsored a $500 billion aid bill with Democrat Bob Menendez (D-NJ).

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Who CARES

For a brief moment I thought that Mitch McConnell might put aside his Machiavellian politics and do what is right for the country. And for a brief moment maybe he did! When the extent of the economic crisis the country was facing became evident in mid-March, Congress passed a $2 trillion emergency measure in a matter of days with relatively little rancor. McConnell, uncharacteristically, seemed to let Treasury Secretary Mnuchin take the lead in negotiating the deal with the Nancy Pelosi, and ordered his troupes to support the bill, which passed the Senate unanimously.

The broad outlines of the CARES act are surprisingly sensible. Subsidies to small businesses were absolutely essential to keep them alive and to keep their payrolls intact as much as possible. I still think it’s rather remarkable that the Republicans agreed to that in the form of the Paycheck Protection Program (PPP), insofar as 75 percent of the forgivable loans must be used to maintain payrolls. It was also somewhat surprising to me that McConnell and the Republicans went along with a significant increase in unemployment insurance benefits and an expansion of eligibility to free-lancers and contract workers. The corporate bailout portion of the CARES act was ideologically awkward for both parties, but it too was essential. The $1,200 tax refunds to be delivered to a broad swath of the public is a clunky and inefficient way to deliver relief but there was an administrative rationale for delivering emergency payments quickly.

Nevertheless, I can’t let the monumental Republican hypocrisy of all this pass without comment. When Obama took office the global financial system was on the brink and the economy was in free-fall, having contracted at an 8.4 percent annual rate in the previous quarter. Obama asked for a fiscal stimulus package totaling approximately $800 billion. He eventually got it, but without a single Republican vote in the House and only after giving major concessions to get the three Republican votes he needed to avoid filibuster in the Senate. Republicans then lambasted it as the “failed stimulus,” opposed every subsequent attempt to further stimulate the weak economy, and harped relentlessly on the “Obama deficits” right through the 2016 election. Once Trump was elected, McConnell and the Republican Party did an immediate about face on fiscal policy, passing a pro-cyclical tax cut stimulus with nary a flinch about the resulting deficits. When the current economic crisis hit with a Republican President desperate for a reelection advantage, Senate Republicans voted unanimously for the $2.2 trillion measure (the House vote is unknown as the bill was adopted by a “unanimous consent” voice vote.)

In any case we’ve seen a broader budget truce than existed during the last economic crisis. Even the Committee for a Responsible Federal Budget, whose very mission is to act as permanent deficit hawk, issued a statement suggesting that “setting aside short-term deficit concerns in order to avoid a depression” is the right thing to do. Nevertheless, I sense some residual doubt among the general public. “Can we really do this?” The short answer is, “Yes, we can.” From 1943 to 1945 the U.S. deficit averaged 23 percent of GDP and by 1946 federal debt held by the public reached 106 percent of GDP. The country did not spend the following decade bemoaning the fact that we ran huge deficits to win the war, nor did the high debt ratio seem to have a constraining impact on economic growth during the 1950s and 1960s. We currently have about an 85 percent debt/GDP ratio and it will surely reach that 1946 figure before this is all over. But we did it once and we can do it again.

Conventional economic theory holds that excessive government debt can suppress the long-term growth of the economy by “crowding out” private borrowing. However, as John Cochrane points out, the Federal Reserve is currently buying government debt faster than the Treasury is issuing it, so there is no sopping up of private savings or crowding out of private borrowers. Moreover, the Fed remits all of its profits to the Treasury, so interest payments on that debt to the Fed quickly return to the Treasury, costing the taxpayers nothing. The future effects, then, will depending on how long the Fed holds that debt and how much it ultimately sells to private investors or other governments. All of this is starting to sound a lot like Modern Monetary Theory.

Modern Monetary Theory (MMT) is a school of thought that holds that there is no real distinction between fiscal policy and monetary policy for countries that issue fiat money, and that inflation is the only constraint on government deficits financed by central bank money creation. It’s been quietly embraced by Bernie Sanders and loudly embraced by Alexandria Ocasio-Cortez, neither of whom are noted macroeconomists. I’ve been wary of it, possibly because of the biases of my conventional training. I’ve approached it much as Keynes predicted classical economists would judge his theories: “(They)….will fluctuate, I expect, between a belief that I am quite wrong and a belief that I am saying nothing new.” I was in a MMT-is-quite-wrong mode until the Covid crisis descended, when I quickly shifted to a heck, it’s nothing new, let’s do it mode. And I wasn’t the only one.

If inflation is, in fact, the only constraint on federal deficits, it doesn’t seem that we have much to worry about for the time being. Quite the contrary, the deflationary pressures are getting a little scary. Ten-year Treasury bonds are now trading at yields under 600 basis points, the CPI fell by .4 percentage points in March and, in a totally mind-bending development, oil prices went negative. The way things are going, we may be praying we meet MMT’s inflation constraint as soon as possible.

The World Changes Again

When I began this blog I had recently left the New York City Comptroller’s Office. During my ten years there I had built up a list of research ideas and policy thoughts that I either did not have the time to get to, or that were too politically sensitive to be pursued under the auspices of an elected official. My intention was to follow up some of those ideas and post them here, hoping that they would accumulate to a reasonably entertaining browsing stop for people interested in similar issues, and maybe even a useful research source for somebody investigating an issue of urban economics or policy.

Then Donald Trump was elected president and much of my research agenda was rendered obsolete. Not because Trump is a detestable individual who should be nowhere near the White House, but rather because he assembled the most extremist, conservative administration in modern American history, and he had Republican majorities in the House and Senate to implement his Fox TV-brand of reaction. Many of my research and writing plans presumed a backdrop of stable government, with policy possibilities fluctuating between center-right and center-left. I might have wanted to investigate particular aspects of environmental policy, for instance, but what relevance did they retain when a climate-change denying administration sought to dismantle environmental regulations rather than improve them? Or, how might thinking about alleviating homelessness have to change when the federal government was actively trying to impede the ability of municipalities to address such problems?

Gradually a list of new research items grew, more relevant to this era of spiteful conservative government and to the period of liberal push-back that will inevitably follow. Then, the novel coronavirus changed the world again. Suddenly, the importance of repealing the caps on state and local tax deductions paled in comparison to the massive fiscal challenges states and cities will face with their economies shut down. Concern about the cost of housing in big cities shifted to concern about whether people will still be willing to live in dense urban environments. Plans to expand urban transit transform into worries over whether the riders will ever return.

By the beginning of April we had seen enough of the virus to know it was a vicious bug and that the social distancing measures were absolutely necessary. In the immediate future there will be a whole lot of death and sorrow, and much human misery in the collateral economic and social damage. Emergency efforts to mitigate the damage will preoccupy the public agenda in coming months, and the recovery of semi-normal economic life will be the policy preoccuption of the next two years or so. It will probably take much longer than that to regain the ground we have lost, especially in terms of the economic interfaces that were flowering all over urban America– the vibrant street life, the proliferating cafes and restaurants, the brimming public transportation, the large employers that were returning from their suburban exiles.

It will probably take five years or more for people to resume their pre-pandemic lifestyles–for travel to recover to the levels of 2019, for people to eat out as much, for events with large crowds to become as common as they were before. It may take a decade or more for the economic damage to be fully repaired–for new restaurants to replace vacant storefronts, for office buildings to be refilled, for the thick ecology of small business contactors to be regenerated. But I’m betting that in the long run the pandemic of 2020 will turn out to be a ditch, not a turning point. There was continuity of the economic and social trends before and after WWII, there was continuity before and after the Great Recession, and I think there will be continuity once again. The big cities will come back, small towns will continue to languish, and we’ll face all the old problems we had before.

Presidents and the Economy

While early opinion polls show a number of possible Democratic candidates beating Donald Trump in the 2020 election, economic models of presidential elections are telling a different story. Some of the most reputable economic models show Trump winning reelection handily on the strength of strong economic fundamentals. Barring an unlikely recession, Trump will undoubtedly make his management of the economy the centerpiece of his reelection campaign.

Most voters seem to think that economic conditions are determined by presidential policies and attribute the strength or weakness of the economy to who’s in the White House. Indeed, questions about management of the economy are staples of political opinion polls. Economists, in contrast, see presidential policies as having relatively little effect on cyclical economic conditions, although they are more prone to believing that sound economic policies can have long-term effects that may manifest long after a president has left office.

Yet, it would be too sweeping to argue that presidents have no short-term economic influence. The effects of tax and budget policies can sometimes have short-term effects (as well as long-term effects that may be hidden from voters), and some regulatory policies may as well. But the biggest economic influence presidents can have usually comes at times of crisis, when the road forks and the consequences of wise or foolish decisions may be fateful. Franklin Roosevelt’s management of the 1930s economic crisis comes immediately to mind. Abraham Lincoln, too, should get more credit for his management of the economic stresses of the Civil War and for his tax and banking innovations. As I will argue, Barack Obama also belongs in that small club of great economic presidents for his handling of the financial crisis and the deep recession he inherited.

Some presidents deserve more criticism for their handling of the economy–Andrew Jackson, for instance–but that is a bit too remote from current concerns. This post will focus on how our past three presidents have affected economic performance, and on how the public ultimately perceived their stewardship.

George W. Bush

The younger Bush inherited from Bill Clinton a federal budget surplus and a minor recession, and he used the latter to justify eliminating the former. That is, he campaigned on and fully intended to give large tax cuts to the wealthy under the already-discredited Supply Side doctrine, but when it became evident that the economy was slipping into recession early in his presidency, he repositioned his tax cuts as counter-cyclical fiscal stimulus. That rationale was enough to give 12 Democratic senators cover to vote for the bill, which passed 58-33 in an evenly divided senate.

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Green Resolution

The “Green New Deal” resolution introduced last week by Representative Alexandria Ocasio-Cortez (D-NY) and Senator Edward Markey (D-MA) was a good idea. The Democrats needed to reestablish climate action as a governmental concern and inject it into the 2020 election. With her high visibility, appeal to young voters, and ability to get under the skin of conservatives, AOC could have been an ideal messenger. Like a football team throwing a bomb to its flashy rookie receiver on the first down of the first game, if executed successfully it could have rattled defenses throughout the season. Unfortunately, the pass was dropped and the Dems might now find themselves wishing they had called a more conventional play.

Sticking with the football analogy just a bit, Nancy Pelosi’s Democrats have been steadily grinding out the yardage but run the risk of being sucked into playing Trump’s game. Since possession of the House shifted to the Democrats, the political agenda and news has been entirely dominated by Trump’s boorish calls for his idiotic wall and his reckless government shutdown. Yes, Pelosi has outmaneuvered him at every step, but the Dems are not going to take back the Senate and White House in 2020 just by playing good defense. Meanwhile, their investigative committees have tread cautiously, partly for fear of interfering with the secretive Mueller investigation and partly for fear of appearing mere hecklers. With each passing week the presidential primary roster expands and, especially if Bernie Sanders enters the race, the risk grows that Medicare-for-All crowds out all other progressive issues. So the idea of AOC streaking down the sideline for a big gain on climate change made some sense.

One reason the play didn’t work as planned was that it wasn’t actually planned. Pelosi was forced to distance herself from it and did so in terms that were a little too dismissive for my taste. But who knows what really went on? Pelosi claimed that she hadn’t even seen the resolution before AOC’s press conference. If true, that’s a serious discourtesy. How is the Speaker supposed to support a resolution she hasn’t seen or apparently had any input into?

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Fear City’s Revenge

I was reading Kim Phillips-Fein’s Fear City at the time news broke of Amazon’s choice of Long Island City as one of its two HQII locations. The Amazon announcement was greeted with a weary acquiescence to the city’s inevitable dominance, as though the Yankees had just signed Bryce Harper. What a contrast to the mood of grim, inexorable decline that permeates Fear City. It reminded me that each chapter of Gotham’s story sets the stage for the next, and that the great city’s essence can be suppressed but not extinguished. 

Phillips-Fein’s book is a highly readable narrative of New York City’s brush with bankruptcy in the 1970s. For those who are not municipal budget wonks, the book maintains a good balance between financial detail and narrative flow. I set down to read it as a professional chore but found myself re-immersed in a period I lived through but, in the heedlessness of youth, failed to appreciate as a time of such outlandish grotesquerie. I could almost hear the punk music pounding and smell the tenements burning.

In Phillips-Fein’s telling the fiscal crisis was not just a trauma for the city, but a pivotal triumph for the emerging neoliberal creed of public-sector austerity over an exhausted New Deal progressivism. With banks refusing to lend to the city, and Wall Street refusing to issue more bonds, and the White House refusing to provide federal aid (thanks in no small part to President Ford’s Chief of Staff, Donald Rumsfeld), the city was forced to make draconian cutbacks in public services. Fire houses and day care centers closed, public infrastructure decayed, and perhaps most symbolically, CUNY ended its policy of free tuition. It was the end of expansive, activist urban government.

If Phillips-Fein had continued her story, though, it would be apparent that the neoliberal triumph was not so final. City government did make many important fiscal reforms as the result of the crisis and today it is run with a great deal of financial discipline and transparency. But its ethos of activist municipal government was not eradicated. In the early 1980s the state and city undertook a major reinvestment in its subways under the leadership of Richard Ravitch, and in the late ’80’s Ed Koch launched his massive housing program, which was instrumental in revitalizing large parts of the city. Mayors Dinkins, Giuliani and Bloomberg continued the housing program and made large strides in reclaiming the city’s waterfront and other abandoned industrial areas. Mayor di Blasio launched a universal preschool program. CUNY did not restore free tuition but it survives as a unique urban institution and in many respects is thriving. Urban liberalism in New York City retreated but did not surrender and had reasserted itself within a decade of the crisis.

There is also another sense, I think, in which Fear City’s short-period narrative obscures the meaning of the fiscal crisis. By giving so much attention to the neoliberal critique of the City’s financial practices and its expansive mission, Phillips-Fein inadvertently conveys that they were the underlying causes of the crisis. They were not. The crisis occurred in the midst of a severe national recession, which Phillips-Fein barely mentions, and a long-term restructuring of the nation’s economic geography. The city’s manufacturing base had been hollowed out by firms moving to the suburbs, and more portentously, to the sunbelt.

We now know that industrial capital’s search for the ideal business climate did not end with the sunbelt. The garment makers, the metal shops, and the electrical assemblers that first moved to South Carolina, Georgia and Texas in search of cheaper and more docile labor, lower taxes, and lax environmental standards later found even more favorable locations in Bangladesh, Mexico, and China. Those manufacturing firms have moved on and so has the city, and only the most stubborn industrial revivalists would still argue that manufacturing mens’ and boys’ outerwear is key to New York City’s economic future.

What appeared to many in 1975 as the city’s death throes now appears more like a molting, with the city shedding activities that would not be essential to its regeneration to make way for those that would. The first energy crisis and resulting recession caught the city during that extremely vulnerable time, a vulnerability compounded by some admittedly sloppy budgetary practices resulting in the humiliating fiscal crisis. But the fiscal crisis wasn’t the result of a fundamentally misguided vision of the role of government in a modern metropolis. In fact, it was that expansive vision of urban government that created the cultural, intellectual and physical conditions for revitalization.

Austin Debates Density

One of the most interesting urban planning debates going on in the country right now is happening in Austin, Texas. In 2012, the Austin City Council adopted the Imagine Austin Comprehensive Plan, a three-year effort that established priorities for the city’s growth and development for the next 30 years. Among the priority actions the plan identified were to invest in a compact and connected Austin, to grow and invest in the creative economy, and to develop and maintain household affordability. The next step in implementing the plan is to revise and modernize its zoning regulations. The city is now in the midst of that process, which it has dubbed CodeNEXT.

Austin, of course, is one of the fastest growing cities in the U.S.  From 2000 to 2017 the city’s population increased from 657,000 to 950,000, an annual rate of growth of 2.2%. It’s also gained a reputation as a fun place to live and has become a migration magnet for millennials; a Brookings Institution study found that Austin has the second-highest proportion of millennials in its population (27.2%) of the top 100 metro areas. With about 48% of its adult population holding a bachelor’s degree or higher, it also ranks among the nation’s most educated cities, comparable to Boston and Minneapolis.

Not surprisingly, Austin’s economic prosperity has entailed some costs. In particular, during this century it has had one of the fastest rates of housing price increase in the country. According to the Freddie Mac House Price Index, home prices in Austin have increased at about a 5.0% average annual rate since 2000, which is on a par with the Fresno, Salt Lake City and Washington D.C. metro areas. Since much of the city and the surrounding areas are zoned for single-family homes, growth has mostly taken the form of low-density sprawl. The developed land area of the metro area increased from just 53 square miles in 1970 to 372 square miles in 2016.

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Transparency in Trumpland

A little juxaposition of news items reveals how the Trump administration views transparency in government.

First comes Scott Pruitt’s announcement that EPA will seek to implement a regulation that will require all EPA rulemaking to be based only on scientific evidence for which the underlying data is publicly available. That will prevent the EPA from formulating regulations based on medical data that is confidential.

According to Pruitt, “The science that we use is going to be transparent, it’s going to be reproducible.” Junk science purveyor and member of Trump’s transition team Stephen J. Milloy added, “This will really open up EPA science to public scrutiny.”

Meanwhile, over at the American Bankers Association conference, Mick Mulvaney, interim director of the Consumer Financial Protection Bureau, announced that the CFPB would cut public access to the bureau’s database of consumer complaints.  Mulvaney explained: “I don’t see anything in here that says I have to run a Yelp for financial services sponsored by the federal government.”

Evidently, transparency is good when it hinders regulations to protect the public health, but bad when it helps to protect consumers.

Making Deficits Great Again

After 2010, when Republicans gained control of the House of Representatives and later the Senate, the U.S. essentially pursued a policy of fiscal austerity.  President Obama sought to roll back the Bush-era tax cuts for wealthy households and was partially successful during the “fiscal cliff” standoff at the end of 2012. Meanwhile, the Republican Congress steadfastly refused to allow Obama to stimulate the economy with federal spending.  As a result, total federal budget outlays (including Social Security) grew at only a 1.9% annual rate from 2010 to 2016, far slower than the 6.5% annual rate of increase during the Bush years.

That American-style austerity was an under-appreciated contributor to the slow recovery from the Great Recession. However, the budget deficits of the U.S. government fell in both absolute dollars and as a percentage of GDP during most of Obama’s tenure, in 2014 and 2015 even reaching a level that produced stability in the ratio of overall debt to GDP. There was some slippage in the deficit at the end of Obama’s tenure, primarily because of a lapse in the economic growth rate in 2016. Responsible fiscal management would have suggested an attempt by Obama’s successor to get the deficit back to parity with the rate of economic growth, which would have required shaving it by about one-third, or by $250 billion.

Of course, after the Republicans held on to both houses of Congress in 2016 and unexpectedly found themselves with a Republican President to work with, there was no reasonable prospect that stabilization of the debt-to-GDP ratio would be made a policy priority. It is undeniable that cutting taxes, regardless of the fiscal implications, is the core policy goal of the modern Republican Party. Two intertwined factors are behind that inversion of Republican political philosophy. First is the widespread acceptance among conservatives of the “starve the beast” strategy for reducing the size of government.  The second was the creation of a much more cohesive, purposeful and sophisticated political apparatus by conservative mega-donors to the Republican Party, who out of ideological conviction and personal self-interest orchestrate anti-tax pressure and insist that their  elected dependents deliver. The two previous times Republicans took over the White House (Reagan and George W. Bush) they immediately enacted huge tax cuts and the deficits swelled. There was never any chance that, in the unlikely event Trump was actually elected, this time would be any different.

So the tax reductions Senate Majority Leader Mitch McConnell and House Speaker Paul Ryan engineered in December were entirely out of the Republican playbook and should have been fully priced in to any economist’s or investor’s forecasts.  If there was anything surprising about the tax changes, it was the gratuitous and vindictive targeting of voters in high-cost, coastal Democratic strongholds (by imposing new limits on the mortgage tax deduction and the state and local tax deduction), an unprecedented use of the federal tax code to punish political opponents.

The McConnell-Ryan tax cuts will raise the cumulative federal deficit by $1.268 trillion over 10 years, according to Tax Policy Center estimates.  That represents a 14.8% increase over the CBO’s June 2017 baseline estimates. 

Then in early February things took an unexpected turn. Instead of pressing for more spending stringency, a smiley McConnell suddenly agreed to a two-year budget deal with Democratic Senate leader Chuck Schumer that called for large increases in both defense and non-defense discretionary spending. The deal, subsequently approved by Congress and signed by the President, is expected to add another $419 billion to the cumulative deficits through 2027.

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