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How Modern Conservatives Aren’t Like Hoover, ctd

Martin Wolf explains the politically brilliant but economically preposterous idea that changed Republicans from minority to majority party and from conservative to “extreme radicals.”

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.

[…]

[T]he 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. 

[…]

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).

[…] 

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.

 (emphasis is mine)

I couldn’t agree more on the danger of having a 1 of the 2 major political parties being completely untethered to economic reality. We don’t have a mainstream conservative opposition in America today – we’re poorer for it. 

(part 1)

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How Modern Conservatives Aren’t Like Hoover

July 14, 2010 2 comments

Recently, I posted a picture of Herbert Hoover attached to my thoughts on the austerity versus fiscal expansion debate. He famously (and should be more famous for) sought to balance the budget during the Great Depression, which exasperated the situation. In his defense, that was what the dominant consensus of economists advocated. Even FDR tried it for a while. Of course, Keynes came a long and eventually changed everything. In order to save capitalism (too many people forget that part) Keynes argued for increasing government deficits by fiscal stimulus to push aggregate demand rightward making up for the lack of private sector spending and to fight deflation. 


For Hoover, balancing the budget was a priority; for modern conservatives, balancing the budget is not only unimportant but something they actively work against. Matthew Yglesias makes the argument that lowering taxes and, thus, tax revenue is the only goal they pursue. He ably shows that they don’t ever work to reduce the deficit. 

1) There have been two presidents who were members of the modern conservative movement, Ronald Reagan and George W Bush, and they both presided over massive increases in both present and projected deficits.

 2) The major deficit reduction packages of the modern era, in 1990 and 1993, were both uniformly opposed by the conservative movement.

 3) When the deficit was temporarily eliminated in the late-1990s, the mainstream conservative view was that this showed that the deficit was too low and needed to be increased via large tax cuts.

 4) Senator Mitch McConnell says it’s a uniform view in his caucus that tax cuts needn’t be offset by other changes in spending.

 5) The deficit reduction commission is having trouble because they think conservative politicians won’t vote for any form of tax increase.

In sum, there are zero historical examples of conservatives mobilizing to make the deficit smaller.  

So the problem today with the modern mainstream conservative movement is that they don’t care about the deficit while simultaneously refusing to allow modern Keynesians from pursuing fiscal expansion or allowing real deficit hawks from reforming entitlements to adequately contain costs.

To preempt anyone that might agree with McConnell that tax cuts don’t lead to “diminished revenue” here is an older National Review piece blowing up that absurdity. And here’s Bruce Bartlett with a roundup of studies showing that “starve the beast” doesn’t work either. Meanwhile, Ezra Klein and Paul Krugman post some graphs that utterly demolish the idea that tax cuts pay for themselves: 


The above also bolsters my claim that unemployment insurance “benefits add almost nothing to the deficit and are just a temporary measure anyway”
Click to Expand

Deficit in Seriousness

Voters want the deficit reduced but don’t want to raise taxes or cut enough spending… is there any doubt that voters are irrational? From Democracy Corps:

Despite these concerns, voters are reluctant to attack the deficit through tax increases or spending cuts on entitlements. In this economy, voters are wary of raising taxes, even if the revenue raised goes to something they deem important, like paying down the deficit. A majority (51 percent) say that even though the deficit is a big problem, we should not raise taxes to bring it down, while only 43 percent say that we might have to raise taxes to reduce the deficit. This rejection is even more acute among the least educated and lowest income voters, who are being disproportionately hurt by the recession and as such are even more strident in their rejection of a new tax to pay down the deficit. 

And by an even wider 2:1 margin, voters reject cuts in Social Security, Medicare or defense spending to bring the deficit down (61 to 30 percent). With nearly three-quarters of the federal budget devoted to these items, exempting them from cuts leaves little room to make realistic progress on deficit reduction. This rejection of spending cuts runs across the political spectrum, with even the most conservative wing of the Republican Party — voters who generally fancy themselves as “deficit hawks” — roundly rejecting the idea of cutting spending to pay down the deficit.

(via Matthew Yglesias

Dog Bites Man

March 19, 2010 Leave a comment

Bruce Bartlett shares results from a survey of Tea Partyers.  

In short, no matter how one slices the data, the Tea Party crowd appears to believe that federal taxes are very considerably higher than they actually are, whether referring to total taxes as a share of GDP or in terms of the taxes paid by a typical family. 

Tea Partyers also seem to have a very distorted view of the direction of federal taxes. They were asked whether they are higher, lower or the same as when Barack Obama was inaugurated last year. More than two-thirds thought that taxes are higher today, and only 4% thought they were lower; the rest said they are the same.

As noted earlier, federal taxes are very considerably lower by every measure since Obama became president.

Surprise! They don’t know much. Facts were never too suited to populism. Full Survey Here

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