Monday, April 15, 2024

AR-Sen: Boozman As Sisyphus

Still pushing that rock up the hill, John Boozman writes:

Instead of making hard decisions to change this course, President Obama and his allies in Congress, including Senator Lincoln, have vowed to throw money at every problem they encounter — driving up the deficit and driving down our economy.

Clearly their approach is not working.

OK, ignore for a moment that (a) this post comes nowhere close to making anything resembling a cogent economic argument (unless you are the type who sees numbers and “Obama” in a paragraph and finds no need for further critical thinking); (b) that the economy is improving, albeit slowly, thanks in large part to the stimulus; and (c) that, by blaming Obama for the deficit, Boozman is effectively saying that the Bush tax cuts and the costs associated with two unnecessary wars are Obama’s fault.

Boozman’s implied assertion is that, if Republicans were in charge, the deficit would not increase because (I assume) Republican economic policies are so much better than what we currently have. After all, who can doubt the efficacy of supply-side economics after seeing how much they reduced the deficit during Reagan and both Bushes’ terms?

What’s that you say? This guy can?

To understand modern Republican thinking on fiscal policy, we need to go back to perhaps the most politically brilliant (albeit economically unconvincing) idea in the history of fiscal policy: “supply-side economics”. Supply-side economics liberated conservatives from any need to insist on fiscal rectitude and balanced budgets. Supply-side economics said that one could cut taxes and balance budgets, because incentive effects would generate new activity and so higher revenue.


In this way, the Republicans were transformed from a balanced-budget party to a tax-cutting party. This innovative stance proved highly politically effective, consistently putting the Democrats at a political disadvantage. It also made the Republicans de facto Keynesians in a de facto Keynesian nation[.]

True, the theory that cuts would pay for themselves has proved altogether wrong. That this might well be the case was evident: cutting tax rates from, say, 30 per cent to zero would unambiguously reduce revenue to zero. This is not to argue there were no incentive effects. But they were not large enough to offset the fiscal impact of the cuts[.]


Since the fiscal theory of supply-side economics did not work, the tax-cutting eras of Ronald Reagan and George H. Bush and again of George W. Bush saw very substantial rises in ratios of federal debt to gross domestic product. Under Reagan and the first Bush, the ratio of public debt to GDP went from 33 per cent to 64 per cent. It fell to 57 per cent under Bill Clinton. It then rose to 69 per cent under the second George Bush. Equally, tax cuts in the era of George W. Bush, wars and the economic crisis account for almost all the dire fiscal outlook for the next ten years (see the Center on Budget and Policy Priorities).

Today’s extremely high deficits are also an inheritance from Bush-era tax-and-spending policies and the financial crisis, also, of course, inherited by the present administration. Thus, according to the International Monetary Fund, the impact of discretionary stimulus on the US fiscal deficit amounts to a cumulative total of 4.7 per cent of GDP in 2009 and 2010, while the cumulative deficit over these years is forecast at 23.5 per cent of GDP. In any case, the stimulus was certainly too small, not too large.

The evidence shows, then, that contemporary conservatives (unlike those of old) simply do not think deficits matter, [b]ut this is not because the supply-side theory of self-financing tax cuts, on which Reagan era tax cuts were justified, has worked, but despite the fact it has not. The faith has outlived its economic (though not its political) rationale.


But no, it is not deficits themselves that worry Republicans, but rather how they are caused: deficits caused by tax cuts are fine; but spending increases brought in by Democrats are diabolical, unless on the military.


This is extraordinarily dangerous. The danger does not arise from the fiscal deficits of today, but the attitudes to fiscal policy, over the long run, of one of the two main parties. Those radical conservatives (a small minority, I hope) who want to destroy the credit of the US federal government may succeed. If so, that would be the end of the US era of global dominance. The destruction of fiscal credibility could be the outcome of the policies of the party that considers itself the most patriotic.

I’m probably tilting at windmills here, but might I suggest that everyone refrain from embracing the failed policies pushed by many of the same people who are responsible for the mess that we are currently digging ourselves out of? Is that too much to ask?

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