Budget short-takes: Those deficits

Anyone paying any attention has noticed that the "deficit hawks" -- led by the Pete Peterson crowd who want to privatize Social Security and gut Medicare -- have been screaming that the government must stop spending so much. Every sane economist (most quite mainstream people) -- folks like Paul Krugman and Bradford DeLong -- says spend more now, get the economy moving again so the government has more income and people have less safety net needs -- then worry about a growing deficit.

Today Ezra Klein tried to propose a grand bargain to move toward a sane deficit reduction plan. It seems worth thinking about:

Yes, deficits can become a problem. But the problem facing America is long-term, not short-term, deficits. Which is why every wonk answers this question the same way: Expand short-term deficits to boost employment and commit to credible deficit reduction in the long-term. The right move for deficit hawks would be to release a proposal that pairs a generous jobs bill with serious long-term reforms (for instance, a bill providing $300 billion in immediate stimulus and also lowering the cap on the mortgage interest deduction, bringing back the full estate tax and cutting defense spending).

Klein's suggestion contains two elements that I'll campaign for any day:

• higher taxes on people who can afford to pay them (in 2009 only .3 percent of estates paid estate taxes according the CBPP; this will change if Democrats stick to their promises)

• cutting war spending.

Economists, especially urban futurists, like to suggest reducing the mortgage interest tax deduction. My thoughts on this are unsettled.

The deduction makes it financially advantageous for as many of us as possible to "buy" homes -- to take out a mortgage and pay that debt instead of paying a landlord. Is this good policy? It certainly helped build suburbs from the 1950s onwards -- but suburban patterns have turned out to tie us to an oil-dependent transportation system and sprawl. This is environmentally unsustainable. Sheer density makes New York City one of the greenest places in the country, hard as that is to fathom.

Being an urban person and also a "homeowner" -- I get the best of this: urban convenience and the deduction. But I could be convinced on policy ground that a cut back in the mortgage interest deductiion, in exchange for my hobby horses -- higher taxes for the rich; cut war and imperial spending -- might be a socially useful bargain.

I'm not holding my breath; I don't believe most of the deficit hawks have any larger policy agenda than increasing the take of the greedy.