"An important first step toward a balanced budget"

What follows is something I wrote up two years ago but never finished.
I decided to keep the first half (the finished half) and throw the rest away.
I'm using this post as an intro to mine of 2 July.


Summarizing the Annual Budget Message to the Congress, Fiscal Year 1965:

The resulting administrative budget deficit of $4.9 billion for 1965 is $5.1 billion below the deficit now estimated for the current year and marks an important first step toward a balanced budget.

- Lyndon B. Johnson, January 21, 1964

From Fire, fury and the national debt limit:

Well, the day of reckoning has arrived. The Treasury has announced that by the end of September, it will face a shortfall. Without the authority to issue additional debt, the government will not be able to pay all of its bills—including the interest on the outstanding debt. In response, President Trump has threatened the Congress: either fund the wall along the Mexican border, or he will shut down the government...

Instead of counterproductive threats and bluster, we should be looking for institutional changes that prevent even the possibility of any future self-inflicted debt crisis. The goal, in our view, should be a set of fiscal arrangements that impose long-term budget discipline, while allowing short-term flexibility.

- Cecchetti & Schoenholtz, August 28, 2017

Long-term budget discipline and short-term flexibility, they say. It sounds like they think we could get the Federal debt under control by getting Federal spending under control. You know: that all-important first step. But I have to point out that we've been going for the "long-term budget discipline" thing since LBJ was president, and it hasn't worked. It hasn't worked. And, for what it's worth, that failure is the original source of the counterproductive threats and bluster that fail to impress Cecchetti & Schoenholtz.


Back in 2010 Paul Krugman said that "the sensible thing" would be to "run deficits while the economy is depressed, then turn to budget-balancing once recovery is well in place". Same thing Cecchetti & Schoenholtz said: Long-term budget discipline with short-term flexibility.

Same thing Keynes said, actually.

Did Keynes have it wrong? No. But something is different now.