Where Have the Virgin Deficit Slayers Gone? Or Mr. Rubin, Have You Been 'Crowded Out?'

Today, Politio reported the the Congressional Democrat Leadership will increase the debt ceiling by $1.8 trillion. There was a time, in Democrat land, that Robert Rubin was thought to be an oracle. During the Clinton years, the Treasury Secretary was so highly regarded that his economic plans were dubbed Rubinomics.

Mr. Rubin, you see, despised long term deficit spending because he believed that it led to higher interest rates over time and therefore a bad economy. It did so, in his view, because deficit spending required excessive government borrowing which adversely competed with and reduced private borrowing which, in turn, led to higher interest rates and “crowded out” private borrowing and investment.

Beyond that, according to Rubin: “ongoing deficits may severely and adversely affect expectations and confidence, which in turn can generate a self-reinforcing cycle among the underlying fiscal deficit, financial markets, and the real economy.” On the other hand, by eliminating deficits, the economy will improve because of lower interest rates, increased confidence and investment.

Following his lead, the Democrats raised tax rates which (a) led to the Republican takeover of Congress in 1994 because they all stood against tax increases, and (b) led to the highest tax burden in US history, and therefore (c) led to the recession of 1999 – which ultimately led to (d) lower revenues.

In other words: Rubinomics didn’t work long term.

In the short term, i.e. before 1999, when the reform-minded Republicans controlled Congress, they limited spending and the budget deficit was briefly balanced – before the tax hikes could sink the economy resulting in less revenue and an unbalanced budget. Clinton and Rubin, however, got the credit for the balanced budget – even though Clinton pushed HillaryCare, which would have grossly unbalanced the budget – as will ObamaCare.

When Bush was elected, the Clinton recession had unbalanced the budget, i.e. revenues fell and spending just kept on increasing. For their part, the Dems became virgin deficit slayers and excoriated President Bush for the deficit they blamed on him even though it was brought on by their tax hikes – and the Media was proud to lend a hand – only they all left out the tax hike portion of the story.

For instance, on January 4, 2002, the Washington Post heralded that: “Daschle to Launch Deficit Attack; New Stimulus Plan Part of Democrats’ Effort Against Bush Policies.” In January of 2004, the Boston Globe reported that former US Treasury Secretary Robert Rubin said that “The next president and Congress will have to rein in the federal budget deficit or risk serious damage to the United States economy.”

In 2006, Clinton “chided the Republican Congress and President Bush on Friday for stoking the federal budget deficit” according to the Dallas Morning News.

Sticking with their theme, on July 28th, 2008, The Hill newspaper reported that: “Dems blast Bush and McCain for record deficit . . . ‘President Bush has mortgaged our future with record deficit spending on the wrong priorities,’ said Nancy Pelosi . . . ‘An unnecessary and extraordinarily costly war in Iraq has turned record surpluses into record deficits’ . . . Senate Majority Leader Harry Reid also blamed Bush for the deficit and attempted to tie the president to the expected GOP nominee, Sen. John McCain . . . ‘The large budget deficit is a symptom of the many serious problems that Bush-McCain Republicans refuse to address,’ Reid said.”

Last summer, Obama met with Rubin. Some believed that that would lead to a more responsible spending policy by Obama. But they were obviously wrong.

Today, the Democrats see trillion dollar deficits as far as the eye can see and Mr. Rubin is nowhere to be seen. No longer the “in” economist, he has very much been “crowded out’ by big spending liberals – and sadly, the virgin deficit slayers are gone.