I want mommy and daddy to stop fighting (covers ears)

I tend to side with Baker here even though I agree with both DeLong and Baker 99 percent of the time and they are good about the data and history in my view. There's always the suspicion, which is perhaps unfair, that DeLong is biased by his time at Treasury. Then there's the counter accusation that Baker is harder on Clinton and Obama than he needs to be because, well because he's an outsider and a curmudgeon or something. (same goes for Krugman)

Can We Cut the Crap on Robert Rubin and Deficit Reduction by Dean Baker

Robert Rubin is best known as the man who pocketed more than $100 million as a top Citigroup honcho as it played a central role in pumping up the housing bubble that sank the economy. However, because of the incompetence (corruption?) of the Washington media, he is much better known as a great hero of economic policy.

Ezra Klein helps to feed this myth when he tells us of the great virtue of deficit reduction in the Clinton years.

Klein may have been influenced by this:

BACK WHEN I FEARED THE BOND-MARKET VIGILANTES: MAUNDERING OLD-TIMER REMINISCENCE WEBLOGGING by DeLong

We in the Treasury--and the staff at the Federal Reserve--had expected the reaction of the long-term bond market to this Fed tightening cycle to be modest. Between 1990 and 1994 the Federal Reserve had reduced short-term interest rates by 5%, and as it had done so long-term rates had fallen by 3%. We attributed 1.75% of that long-term interest rate reduction to the reduced current and expected future federal deficits as a result of Clinton's OBRA 1993 and the earlier Foley-Mitchell-Bush OBRA 1990, leaving 1.25% to be the reaction of the long-term bond market to lower short-term interest rates. Thus as the Federal Reserve raised short-term safe interest rates from 3% to 6%, we expected a quarter of that to show up as a rise in long-term rates--we expected to see them go from 6% to 6.75%. 

Instead, in 1994 long-term bond rates rose from 6% to 8%. 

In the end we attributed the excess rise in long-term bond rates in 1994 to two factors:

1. As interest rates rose, the duration of Mortgage Backed Securities lengthened--people weren't refinancing their houses any more. MBS thus became much longer duration securities--there was a much greater supply of long-term bonds in the market--and by supply and demand that pushed the prices of such bonds down until investment banks could figure out how to tap more risk-bearing capacity to hold those bonds. 
2. Nobody was sure that the Federal Reserve was going to stop raising short-term safe interest rates when they hit 6%. In the late 1980s, after all, they had not stopped until short-term interest rates hit 8%. Without effective forward guidance from the Federal Reserve, the bond market was pricing in a larger tightening than seemed likely to us. 

We were, I think, completely correct. By mid-1995 it was clear that the Federal Reserve had reached the end of its tightening cycle and more money had flowed into the long-term bond market to hold attractively-priced MBS, and the long bond rate fell back into the trading range we had anticipated--and then fell some more. 

So: 1994 was an interesting lesson on the importance of clear Federal Reserve forward guidance in avoiding excess bond-market volatility and on the consequences of endogenous duration for the short-term pricing of complex securities, but it was not an example of bond-market vigilantes fearing higher deficits and default or inflation riding over the horizon. The federal deficit was under control and rapidly shrinking in 1994 as the combination of the business-cycle recovery and Clinton's OBRA 1993 worked even better than we had anticipated. 

Second, there had been an attack--or, rather, not an attack but rather bond-market vigilantes visible on the horizon and gunshots in the air--earlier. 

Throughout 1992 there was a 4%-point gap between the 3-Month Treasury rate and the 10-Year Treasury rate. Those of us in the Clinton-administration-to-be read this as market expectations that the uncontrolled federal budget deficit would lead people to expect higher inflation and the Federal Reserve would then feel itself forced to raise short-term interest rates far and fast in order to hit the economy on the head with a brick and keep those expectations of higher inflation from coming true. The result would be a low-investment and perhaps a jobless recovery. The right policy, we thought--and I think the evidence is pretty clear that we were 100% right--was to aggressively move to reduce the budget deficit in 1993 even thought the recovery was weak in order to eliminate any market expectations that high deficits would lead to higher inflation, and--more importantly--to eliminate any belief on the part of the Federal Reserve that it need to raise rates rapidly and far to create a low-investment jobless recovery in order to guard against any possibility of a renewed inflationary spiral. 

That was not an attack but a horizon-sighting of bond-market vigilantes--or perhaps only the market thinking the Federal Reserve thought it was about to get a horizon-sighting of bond market vigilantes. 

I think we were right then to fear and take steps to ward off the bond-market vigilantes--or perhaps only right to fear and take steps to ward off any Federal Reserve decision that it needed to fear and take steps to deal with bond-market vigilantes. In any event, our policies were right.