By James Kwak
Mike Konczal points out Gene Sperling’s recent performance on MSNBC, arguing that uncertainty about long-term deficits is weighing on the economy.
What surprised me is that I was just (re-)reading about the early days of the Clinton economic team, and back then Sperling was on the other side of the debate. In Robert Rubin’s account of the famous January 7, 1993 meeting (well, famous if you’re into economic policy debates from two decades ago), the deficit hawks were Al Gore, Lloyd Bentsen, Leon Panetta, and Rubin. The people who wanted more stimulus and less deficit reduction were Robert Reich, Laura Tyson, George Stephanopoulos, and Sperling. (See In an Uncertain World, pp. 123-24.) In Clinton’s memoir, Sperling was also on the side of stimulus and investment: “Gene Sperling made a presentation of options for new investments, arguing for the most expensive one, about $90 billion, which would meet all my campaign commitments immediately.” (My Life, p. 461.)
Of course, the economic conditions were different back then. Interest rates actually were high (ten-year Treasuries were at 7 percent, with inflation under 3 percent), and Tyson, Alan Blinder, and Larry Summers were all arguing that deficit reduction would lower interest rates and stimulate growth. Alan Greenspan was also implying that if the new administration reduced the deficit, he would help lower interest rates. In other words, back then there probably was something to the idea that deficit-cutting could stimulate the economy.
That’s clearly not true today, because interest rates are already about as low as they can be. Or at least, if you’re going to argue that deficit-cutting will stimulate the economy, you have to come up with some other transmission mechanism, because it can’t be interest rates. There are valid reasons to want to fix our long-term debt problem, but stimulating the economy in the short term isn’t one of them.
So why is Sperling now the man arguing for deficit reduction? The simplest explanation is that he’s on TV defending his boss, and his boss wants deficit reduction. The other explanation, which Konczal suggests, is that Sperling and the rest of the economic team are products of the Clinton administration, and deficit reduction is what worked for them.
Summers, who was a deficit hawk in 1993, is now in favor of near-term traditional fiscal stimulus — an extension of the payroll tax cut and more infrastructure spending — and deficit reduction in the medium term. He can see the difference between 1993 and today. Of course, having left the administration, he also has the liberty of speaking his mind.