Red Ink: Inside the High-Stakes Polities of the Federal Budget

Red Ink: Inside High-Stakes Polities of Federal Budget David Wessel New York: Crown Business, 2012, 224 pp. If you want a primer on fiscal policy issues that gives you an establishment perspective, David Wessel's Red Ink should be your cup of tea. If you thought 1990 budget deal was a good thing and if you want something similar today, you should read Red Ink to have your views reinforced. But if you want to understand anything about economics of fiscal policy, and you get irked by mistakes that conveniently promote a more statist narrative, then you probably shouldn't read book. Let's start with good news. Red Ink is very readable, logically organized, and it includes numerous interesting vignettes (I didn't realize that social disaster we call Prohibition was made possible in 1920s only because economic disaster we call income tax was imposed in 1913). Moreover, if you read Red Ink, you will be better informed than 98 percent of population. You will know lots of details about defense spending, tax collections, entitlement programs, and 1974 Congressional Budget Act. I'm not sure that will make you a welcome guest at dinner parties, but at least you'll sort of understand how much government is spending and how fiscal policy is decided in Washington. Wessel is not polemical. There's no shrillness and you won't feel that he's trying to enlist you in a campaign. But here's bad news: You won't have much understanding of good fiscal policy after you finish book. Indeed, you may be lured into thinking that main problem is excessive deficits and that raising taxes is responsible solution. Except, of course, when deficits are too small and spending should be increased. For better or worse, Red Ink reflects establishment consensus. Based on what Wessel has written, he would make a perfect press spokesman for Congressional Budget Office, Committee for a Responsible Federal Budget, or International Monetary Fund. Best of all, press releases almost write themselves. If economy is weak, you simply insert phrases such as targeted spending increases to stimulate economy. And you'll never go wrong if you use terms such as revenue enhancement for fairness and balance. The fact that establishment thinking has not worked very well--whether in Japan, Europe, or United States--doesn't seem to matter. Is this an unfair portrayal? Well, let's just examine some of Wessel's assertions. He writes, Today's budget deficit is not an economic problem--tomorrow's is. Setting aside fact that he's focusing on symptom of government borrowing rather than underlying disease of government spending, what he's really saying is that right fiscal policy today is Keynesian stimulus. To show this is no exaggeration, Wessel also writes, Running bigger deficits in a deep recession and sluggish recovery is still Economics 101. In other words, Wessel is embracing thinking that Obama administration used in 2009 (and Bush administration used in 2008) to justify bigger government. And what about fact that economy has suffered worst recovery of any business cycle since end of World War II? Wessel wants us to believe that economy would have been in far worse shape without Obama's so-called stimulus, asserting that the argument that such massive spending had no impact on economy at all hasn't much merit. Presumably he would also say stagnation of 1930s was result of inadequate stimulus, even though Hoover increased burden of spending by about 50 percent in just four years and Roosevelt then doubled budget in next eight years. Likewise, pervasive stagnation of Japanese economy for past two decades somehow would be unrelated to its dozen or so Keynesian packages. …