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.

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