Once upon time, when the GOP was still attempting to dress itself up as a party of ideas, Yuval Levin was considered one of its star intellectuals. As editor of the conservative policy journal National Affairs, he was a wonkish prophet of fiscal doom, who argued that the U.S. would soon face a reckoning over its national debt, and that the only way to avert catastrophe was to radically curtail the modern welfare state. Levin was once described as Paul Ryan’s own “personal philosopher,” and was the sort of guy who could get David Brooks hot and bothered by writing a long-winded argument for slashing entitlement spending.
If a politician like Sen. Marco Rubio or Wisconsin Gov. Scott Walker had become president in 2016, Levin might still be playing a starring role in Washington’s policy discourse. But of course, Donald Trump is president, and Republicans have dropped the charade that they sincerely care about the deficit, or whatever the heck got written about in ponderous thinky policy rags. Levin still gets cited by columnists like Brooks, but his star is a bit fallen.
So I was interested to see that that he had teamed up with James Capretta of the American Enterprise Institute to write a new essay in the Weekly Standard trying to bring back some of that old deficit hawk religion. It’s called “The Entitlement Crisis Is Looming,” and is about what you’d expect—though rather than simply haranguing Democrats like they would have in the past, now the authors take a pox-on-both-your-houses approach. (“When it comes to federal deficits and debt, the parties have never been more aligned.”) But the piece does offer one idea that’s both novel as well as asinine: It tries to blame slow wage growth in recent years on the budget deficit.
There is a broad consensus among economists that large and persistent deficits slow economic growth by lowering savings and investment. Workers are less productive than they would be otherwise and have lower incomes. In fact, the recent run of stagnant wages is likely owed in part to inadequate investment in productivity growth due to high deficits, and thus low national savings rates, over many years.
As Mike Konzcal of the Roosevelt Institute summed this up on Twitter:
Levin and Capretta are talking about an old concept called government “crowd out,” which says that public spending can end up hurting private investment in the economy. When the government runs large budget deficits and has to borrow a bunch of money, the thinking goes, it can push up interest rates. This discourages businesses from borrowing to invest in things like industrial equipment or new software, since they’d have to pay more on their debt. As a result productivity growth, the economy, and workers’ wages may start to slow. (Here’s a nice textbook summary of the subject.)
People generally don’t spend a lot of time talking about this stuff these days, and for good reason. If crowd-out were really happening, you’d expect high or rising interest rates. That’s the tell-tale sign, the mechanism that nudges companies out of investing. But despite our swelling deficits, rates have been stuck at historic lows for most of the past decade. And a good deal of the economic conversation has been about why that is, from Larry Summers’ theory of secular stagnation to Ben Bernanke talking about the global savings glut. But now, Levin and Capretta are trying to quietly plant the seeds of an argument that is dependent on rates being high, which anybody who has a passing familiarity with these issues would recognize as absurd.
Does this all mean crowd-out is wholly a myth and couldn’t ever possibly happen in the future? Not necessarily. But there’s not much evidence that it’s happening now. There are some economists, such as former Counsel of Economic Advisers Chair Jason Furman, who have argued that low productivity growth could be holding back wages. But that idea is separate from what Levin and Capretta are arguing, which is that government deficits have hurt investment over the last several years, and as a result kept down wages.
Why harp on this, if Levin is out of fashion? At some point, I assume, Donald Trump will no longer be president, and the Republican party will once again try to apply a bit of intellectual gloss over its policies to look like something other than the party of visceral white backlash and plutocracy. Chances are, People like Levin (and Capretta) and will absolutely play a role in that rehabilitation tour, and chances are they’ll try to peddle absurd ideas like “deficits killed wage growth.” Just because our president is a menace doesn’t mean we should let the rest of the conservative movement and its snake oil off the hook.