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Mick Mulvaney Is Now a Keynesian

WASHINGTON, DC - SEPTEMBER 08:  White House Budget Director Mick Mulvaney speaks to members of the media after a House Republican Conference meeting September 8, 2017 at the Capitol in Washington, DC. Mulvaney was on the Hill to push for the Trump Administration's Hurricane Harvey relief and debt limit package.  (Photo by Alex Wong/Getty Images)
This guy. Alex Wong/Getty Images

The Republican tax push is off to a slightly rocky start, in part because the party can’t quite agree on whether—or how much—the bill should add to the federal deficit. On one end, you have Sen. Bob Corker of Tennessee, who says there’s “no way in hell” he’ll vote for a bill that adds to the deficit and may be serious since he’s retiring anyway.1 On the other, well, you have all the Republicans in Washington who were happy to use fearmongering about the national debt as a talking point during the Obama administration, but who now want to shred the tax code into hamster bedding, at any cost, while they have the chance.

That group apparently includes White House budget chief Mick Mulvaney, who during his time in Congress was known as squawking deficit hawk. Back during the 2011 debt ceiling crisis, he famously said that it would be better for the government to default on its obligations than pass a clean hike and warned that what “we desperately need is structural change that stops Congress from continuing to spend a bunch of money we don’t have.” He also co-authored a budget amendment known as “cut, cap, and balance”—the name says it all—and once introduced an amendment that would have made Congress offset Hurricane Sandy aid with cuts to other spending, just because.

And today? Well, now Mulvaney’s job is to sell a tax plan that will almost certainly set the federal government back 13 figures. His new stance is not only that deficits are good, but they are essential if anybody wants tax cuts to grow the economy.

“I’ve been very candid about this. We need to have new deficits because of that. We need to have the growth,” Mulvaney recently said, according to Bloomberg. “If we simply look at this as being deficit-neutral, you’re never going to get the type of tax reform and tax reductions that you need to get to sustain 3 percent economic growth.”*

It’s best to think of this as an illiterate riff on classic Keynsian economics—which holds that the government can make up for a temporary shortfall of demand through deficit spending. But contra Mulvaney, people generally don’t try to argue that the government can increase the long-term growth rate by shelling out more than it gets through taxes. In fact, deficit spending might do the opposite, if government borrowing forces up interest rates and slows down private-sector economic activity. That’s especially likely to happen if the Federal Reserve—which already seems to think we’re growing about as fast as we should—gets spooked about inflation and hikes rates.

Moreover, Mulvaney is directly contradicting a good number of mainstream tax economists who would tell you that deficit-neutral reforms can increase economic growth by realigning incentives to spend or invest. To be fair, almost nobody serious in the field thinks those changes alone could get us to 3 percent growth. But again, deficits won’t bring us there, either.

The important thing here, though, is that the next time you hear a Republican talking about how we’re on the road to fiscal perdition, remember that there’s no such thing as a deficit hawk in fox hole.

1 Caveat: He says he’ll accept some amount of dynamic scoring, which factor in the projected effects of economic growth on tax revenue, but that the projections need to be “reasonable.”

*Correction, Oct. 3, 2017: This post misattributed Mulvaney’s quote to an interview with Bloomberg. He appeared on CNN on Sunday.

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