Budgets and Bellbottoms

Here’s a sure-fire economic test of someone’s age: Can you remember when fiscal policy mattered? From the Ford-Carter ‘70s through the first year of the Clinton administration, there was an assumption—sometimes explicit but mostly just accepted—that the federal budget was a major factor (arguably the major factor) in determining the nation’s financial health. Threats of either double-digit inflation or double-digit unemployment so terrified the public psyche that the question, say, of whether the deficit brought on by increased military spending would feed the inflationary beast inspired febrile debates.

That notion is incredibly dated; it’s the economic equivalent of bellbottoms. When was the last time you read an article arguing that cutting or adding government spending was going to have meaningful macroeconomic effects? Today it’s all about the Fed: Interest rates are the equivalent of papal dictates. To update Richard Nixon (“We’re all Keynesians now”) who himself was probably updating the Conservative British statesman Arthur Balfour (“We’re all socialists now”): We’re all monetarists now.

The combined forces of the stock market explosion and the Clinton administration’s tough love on the deficit killed the fad of fiscal fetishism. Recall that in 1993 Congress and the Clinton administration fought for months over a “stimulus package” consisting of a few billion dollars that was designed to kick-start the economy. Today the thesis that such measly sums could control or even significantly influence the overall economy will produce, at best, polite throat-clearing from the average American banker or businessperson.

And yet I’m sensing a bit of fiscal nostalgia. As with bellbottoms, you can never precisely predict when certain economic beliefs are going to come back in style with an influential smart crowd. My inspiration was the survey issued Monday by the National Association for Business Economics. (You can download the survey here.)

The survey’s main finding, culled from 334 economists, is uncontroversial: They think a recovery is on its way, and they think it will be real, i.e., they don”t think the economy will dip back into recession anytime soon. But my eyebrows rose when the economists were asked what they saw as America’s major economic problems. Their No. 1 choice (again, uncontroversial) was high levels of consumer and business debt. Their No. 2 choice, however, was “excessive growth in, or excessive size of, government spending and/or taxation.”

Huh? Didn’t we just witness one of the largest tax cuts in American history? Is the economic threat posed by Big Government really getting worse?

It’s important to avoid reading too much into these numbers; we’re talking about single-digit movements. Still, I think it’s significant that this “excessive growth” concern was only the sixth most important economic worry last summer, and that it’s higher now than anytime since 2000.

I imagine that economists as a group are more rigidly anti-government than the population as a whole. But that makes this survey all the more intriguing: The Bush administration’s fiscal policy seems to be reviving fears about the budget’s overall economic impact. If the combination of a tax cut, extra billions for the military, and still more billions for post-Sept. 11 rebuilding actually threatens a fragile economic recovery, then economists may be the only ones with the political courage to say so. The inescapable conclusion, as with the hefty tariffs imposed on steel imports earlier this month, is that the Bush administration is not as aligned with orthodox economic theory as it likes to pretend (Steve Chapman analyzed the history of Republican protectionism in Slate last week.)

So long as Bush’s stealth protectionism remains politically popular and the economy continues to inch upward, that gap won’t matter very much. (After all, there’s practically no domestic opposition: On the steel import question, most leading Democrats didn’t think the tariffs were large enough.) But if bellbottoms ever make a broader-based comeback, the president could find himself a fashion victim.