THOSE WHO believe in what some nameless fellow once called voodoo economics are back at it. Is the economy soft (and further threatened by high oil prices)? Is the budget deficit dangerously high? They have the perfect answer to both, and if it sounds familiar, well, you've heard it before: they say cut taxes.
The faint of heart, those poor prisoners of grade-school math, will reflexively object that a tax cut can only exacerbate the intertwined problems. Not merely will it by definition increase the deficit, but by thereby holding interest rates higher than they would otherwise be -- the more the government has to borrow, the higher it bids up rates -- it will retard the economy's recovery.
What conventional drivel, say the true believers. If only the Federal Reserve would do its accommodative duty, the tax cuts would in effect pay for themselves -- so stimulate the economy as eventually to drive the deficit down. Where you heard this intoxicating idea before, of course, was in the early years of the Reagan administration. Though to be fair about it, Ronald Reagan was hardly the first president to suggest that by the spreading of federal largess he could cause the economy to grow out of its problems. Any number of his predecessors, Democrats particularly, did the same, only they preferred to give it away in the form of spending increases rather than tax forgiveness.
But Mr. Reagan carried it to an extreme of which these predecessors, whom he denounced for their free-spending ways, never dreamed. That is why the deficit after nearly eight years of expansion is still so high; it is also why the government has so little in reserve to combat a threatened recession. When fiscal policy is already too stimulative, how do you make it more so?
The administration, to its credit, continues to urge that the deficit be brought down; the talks to do so are to resume next week. There's no way that it can be brought down all on the spending side, particularly as defense is now a harder target (and for cause) than it was before the Iraqi invasion of Kuwait. There has to be a sizable tax increase.
No one disputes that it's harder to do what needs to be done in a weak economy than it would have been in a stronger one, but that's spilled milk, a reminder of past lack of resolve. If a recession indeed comes and they fail to begin to ratchet the deficit down, the recession will simply institutionalize a higher deficit. Left in this way to itself, the problem will only get worse, not better. The country has to take its medicine, and the medicine ought not be the hair of the dog that brought us here.