The Price of Loyalty

Brad DeLong calls The Economist’s profile of Mitch Daniels, “A beat sweetener so sweet as to send us all into hyperglycemic collapse.” He continues:

When Mitch Daniels was in a position of power and authority, responsible as Director of OMB for maintaining fiscal sanity, he simply did not do his job:Mitch Daniels Did Not Do His Job: One of the threads of Ron Suskind’s The Price of Loyalty is that Mitch Daniels simply did not do his job as Bush’s OMB Director. The OMB Director is the principal–indeed, the only–voice inside the White House for fiscal prudence, for trying to ensure that the money the government spends is spent well and that the resources the government raises are adequate for the spending plans the White House evolves. While he was Bush OMB Director, Daniels simply did not do his job.

One revealing passage from the book in question:

And page 296: The Commerce Secretary echoed much of what had been said…. As usual, not a real discussion, O’Neill thought as he looked over at [Mitch] Daniels…. He knew Daniels was focused on the perils of rising deficits, but it would take gumption to air those concerns in a room full of tax cut ideologues. "I think we need to balance concerns," Daniels said…. "You need to be out front on the economy, but I am concerned that this package may not do it. The budget hole is getting deeper… we are projecting deficits all the way to the end of your second term." From across the table came glares from the entire Bush political team. Daniels paused…. "Ummmm. On balance, then, I think we need to do a [tax cut] package… accelerate the rate cuts and the double taxsation of dividends…" O’Neill looked with astonishment at Daniels… turn 180 degrees in midsentence…

From what I can tell, Mitch Daniels really is serious about governing. Whatever mistakes he made in the past appear to be mistakes based on wanting to keep his job and his reputation in his own party intact. Not a good excuse, but not exactly uncommon in politics either. And in many ways they reflect the mistakes of the country as we hurdled headlong into two wars, a series of major tax cuts, and other various follies. But this certainly doesn’t mean we should trust his commitment to fiscal sanity should he ever find himself in the Oval Office. Perhaps it would be different as boss, but perhaps, too, the pressure to take the popular but wrong approach to the unpopular but right one would simply be too great.

All that being said, I find myself less and less convinced that deficits per se are the right way to view our fiscal solvency at this point in time. I find the balance sheet recession theory very compelling. And though I have fears of underlying structural problems being glossed over by stimulus and increased spending without strings attached, I’ve also become more a Keynesian. If private balance sheets are in a state of shock and recovery, public spending might be necessary to keep the boat afloat – especially if it’s money spent on something useful like really fast trains. Either way we’re going to need to raise taxes in the future in order to balance the budget. We’ll likely need some sort of consumption tax, and a wider swath of the American public will need to become regular taxpayers. And we’ll likely need to increase the number of tax brackets at the top end also. All of this just strikes me as inevitable. Tax cuts? Probably not, though trade offs such as replacing part of the payroll tax with a carbon tax seem sensible enough.

Certainly Daniels saw that the tax cuts his boss wanted were fiscally unsustainable. Whether sticking to his guns would have mattered is another question entirely.