Saturday, February 1, 2014

Public opinion and budget deficits

Paul Krugman says "the public doesn’t 'get' macroeconomics," meaning the Keynesian idea that a budget deficit is desirable during recessions.  He cites a Gallup poll from 1936, in which 65% said "yes" when asked "do you think it necessary for  the new administration to balance the budget?"  More recent surveys bear him out.  In 2002 and twice in 2009, surveys asked "which of the following comes closer to your view of the budget deficit--the government should run a deficit if necessary when the country is in a recession and is at war, or the government should balance the budget even when the country is in a recession and is at war?"  The results:

            Deficit  Balance
Jan 2002      51%    46%
Jan 2009      33%    65%
Nov 2009      30%    67%

A slight majority favored the "run a deficit if necessary" option in January 2002, but that was only a few months after 9/11, so my guess is that the possibility of war was more prominent in people's minds.  The January 2009 results are striking--we definitely were in a recession then, and the survey was taken before Obama's inauguration, so the opposition wasn't a reaction to his policies or Republican opposition to his policies.

However, there was a survey back in 1958 (when the US was in a recession) that asked "Some people say that it is always a bad idea for the government to spend more money in a year than it collects in taxes--that is, to have an unbalanced budget.  Others say that in times of recession or depression it can actually help the country's economy for the government to spend more than it takes in in a year.  Do you feel an unbalanced budget is always a bad idea or do you feel it can sometimes help the country's economy?"  Only 33% said it was always a bad idea and 56% said it could help (10% were not sure).

I'm not sure why the results were so different.  The wording for the 1958 question seems pretty neutral, so I'm inclined to think it reflects a real change of opinion.  Keynesian theory was dominant in macroeconomics at that time, and maybe that indirectly influenced the public.  There was also recent historical experience--the country had run up a huge deficit during World War II, but then had avoided a major postwar depression and the economy had been going along pretty well until the 1958 recession.  Maybe the experience of the 1970s soured people on deficits.

The 1958 survey also asked people "buying things like refrigerators, washing machines, and vacuum cleaners on the instalment [sic] plan is the most sensible way to buy, or that it is all right if it's the only way you can manage it, or do you feel that instalment buying is almost always a bad idea?"  This is interesting, because an obvious explanation for public opposition to deficits is that they draw on their experience with household finances.  There is a relation, although not as strong as I would have expected.
                 Deficits bad    Deficits       DK      Total
                                 can help

Sensible            30%             59%         10%     28%
if the only way     31%             59%         10%     49% 
bad idea            44%             47%          9%     21%

Even among the people who rejected installment buying, a plurality thought that deficits could help the country.

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