Why Fiscal Conservatives Should Vote Democrat

by Jacob Davies

There's an op-ed in the NYT today by David Stockman with what Barry Ritholz calls a "brutal critique" of recent Republican fiscal policy. Ritholz provides a convenient summary of it:

• The total US debt, including states and municipalities, will soon reach $18 trillion dollars. That is a Greece-like 120% of GDP.

• Supply Side tax cuts for the wealthy are based on “money printing and deficit finance — vulgar Keynesiansism robed in the ideological vestments of the prosperous classes.”

• Republicans abandoned the belief that prosperity depended upon the regular balancing of accounts — government, trade, central banks private households and businesses.

• Once fiscal conservatism was abandoned, it led to the serial financial bubbles and Wall Street depredations that have crippled our economy.

• The Nixon administration defaulted on American obligations under the 1944 Bretton Woods agreement.

• Who is to blame? Milton Friedman. In 1971, he persuaded President Nixon to unleash on the world paper dollars no longer redeemable in gold.

• According to Friedman, “The free market set currency exchange rates, he said, and trade deficits will self-correct.” What actually occurred was “impossible.” Stockman calls it “Friedman’s $8 trillion error.”

• Ideological tax-cutters are what killed the Republicans’ fiscal religion.

• America’s debt explosion has resulted from the Republican Party’s embrace, three decades ago, of the insidious Supply Side doctrine that deficits don’t matter if they result from tax cuts.

• The GOP controlled Congress from 1994 to 2006: Combine neocon warfare spending with entitlements, farm subsidies, education, water projects and you end up with a GOP welfare/warfare state driving the federal spending machine.

• It was Paul Volcker who crushed inflation and enabled a solid economic rebound — not the Reagan Supply Side Tax cuts.• Republicans believed the “delusion that the economy will outgrow the deficit if plied with enough tax cuts.”

• Over George W. Bush 8 years in office, non-defense appropriations gained 65%.• Fiscal year 2009 (GWB last budget): Tax-cutters reduced federal revenues to 15% of GDP — lower than they had been since the 1940s.

• The expansion of our financial sector has been vast and unproductive. Stockman blames (tho but not by name): 1) Greenspan, for flooding financial markets with freely printed money; and 2) Phil Gramm, for removing traditional restrictions on leverage and speculation.

• The shadow banking system grew from a mere $500 billion in 1970 to $30 trillion by September 2008 (see Gramm, above).

• Trillion-dollar financial conglomerates are not free enterprises — they are wards of the state, living on virtually free money from the Fed’s discount window to cover their bad bets.

• From 2002 to 2006, the top 1% of Americans received two-thirds of the gain in national income.

In light of the actual history of Republican governance, it's hard to swallow the line that tax-and-spend Democrats are about to bankrupt the country. If you really are a fiscal conservative, you should be voting for Democrats, at the very least until the Republican party gets the message.

Comments

[Marty]

Sounds great, non factual and I would love to discuss the specifics when you put all of those things in the context of Democratic vs Republican Congresses over those thirty years. It is fine to say that the Republicans did this or that, but each of those things were a compromise with many Democratic Congresses. (And, as always, it starts with Reagan so no history before that matters.)

Here are the facts, the original Bush tax cuts were designed to give back a projected 4 trillion dollar plus surplus, generated by supply side economics. The estimate was Clintons.

Supply side economics created the most stable 30 year period for the economy in our history.

Then the combined parties each took their chunk, tax cuts (both parties, different taxes) and extra spending (both parties, different spending), they both avoided fixing structural long term issues, and they both voted for the war in Iraq

Then the economy tanked, as much because of Barney Frank as Phil Gramm.

That doesn't make all of those policies bad or wrong, it means we should do better at watching how they work going forward.

[Bernard Yomtov]

Marty,

a projected 4 trillion dollar plus surplus, generated by supply side economics.

Deficits grew dramatically through the Reagan-Bush Sr. years. They began to decline under Clinton.

[Kenneth Almquist]

I think that for many people on the political right, fiscal conservatism is more of a tribal marker than a policy preference. I haven't seen any evidence that there are significant numbers of voters who would use their vote to try to push for more fiscally conservative policies.

[Marty]

BY,

but the supply side economics drove the growth that gave the Congress the ability to create the surplus. It strikes me that we can't talk about thirty years of supply side policy and then say "except for that time Clinton was there".

[Tony P.]

Here are the facts, the original Bush tax cuts were designed to give back a projected 4 trillion dollar plus surplus, generated by supply side economics. The estimate was Clintons.

Heh. Was Clinton's 1993 tax hike part of "supply side economics"? You know the tax hike I mean: the one that Republicans called "the biggest tax increase in history"; the one they declared would "destroy the economy"; the one that not a single one of them voted for.

If the Republicans thought Clinton was just carrying on "supply side" economics, why did they do and say those things? To expose themselves to ridicule? To show what they mean by "compromise"?

Reagan doubled the national debt. So did Dubya. You can try, if you like, to argue that their deficits stimulated the economy, which is what Keynesians say government deficits do. But you cannot then praise the stimulation while denouncing the deficits.

As for blaming "Barney Frank" for the housing bubble, are YOU trying to expose yourself to ridicule?

--TP

[Marty]

TP,

I am a huge fan of extending the tax cuts and spending another 3 trillion dollars to stimulate the economy. I am just not a huge fan of giving all 3 trillion to the government to spend. All of those great multipliers everyone talked about in terms of the first stimulus were great, but they mostly sustained fed, state and local spending without significantly growing the private economy.

I believe in having a plan that says we are going to spend x on y that will create z and then measure it. The only policy that I saw implemented in my lifetime that came close to creating z was the supply side focus of Reagan, Bush and Clinton. Politics aside.

Democrats are busy throwing the baby out with the bathwater. Republicans are doing what the minority does, finding any lever they can to criticize the Democrats. Neither is very appealing to me.

[Bernard Yomtov]

Marty,

but the supply side economics drove the growth that gave the Congress the ability to create the surplus. It strikes me that we can't talk about thirty years of supply side policy and then say "except for that time Clinton was there".

So the prosperity of the Clinton years was due to Reagan? Come on. You can't just choose lags that fit your theory.

I took the compound growth rate in GDP for the previous decade for every year from 1956 through 2001. In 1975 that number was 3.1%, which represented a drop from higher figures going back to the mid-60's.

After that it has pretty well stayed in the 3.0-3.5% range, showing no particular increase in the mid 80's - early 90's, when the effect of Reagan's tax cuts would appear.

Looking at shorter time intervals, the 83-85 period showed strong growth, since we were coming out of a recession, but the level was not sustained, as I would expect if the tax cuts were truly miraculous.

[The Anti-Orwell Brigade]

"Should Vote Democrat[ic]"

Seriously, it's the Democratic party, and if you vote for them, you're voting Democratic. It's not the Democrat party, unless you're from Fox News and are trying to create psychic distance between the Democratic party and democracy.

[Tony P.]

Marty,

What do you mean by "giving all 3 trillion to the government to spend"? How do you distinguish between "fed, state, and local spending" and the "private economy"?

The cop that's sitting in his cruiser a few doors down from my house, waiting for speeders on Main Street, is a government employee. But he buys his coffee at the same Dunkin Donuts as I do. We call his paycheck "government spending" because it is MONEY THAT LEAVES THE GOVERNMENT. My friend the cop, as a consumer, is part of the "private economy".

A few doors the other way, construction is wrapping up on our new police station. "Government spending" in action. Again, the money went to a private-economy architect, and a private-economy construction company, and private-economy vendors of office furniture. Government can no more "spend money" without spending it in the "private economy" than you can call it spending when you move a dollar bill from your left pocket to your right one.

I am trying to illustrate a general principle with specific examples. The general principle is that "government spending" is what government transfers from the Treasury to the "private economy".

If you want "another 3 trillion dollars to stimulate the economy" without "giving all 3 trillion to the government to spend", I can only infer that you're saying this: don't collect that entire $3T in taxes; borrow some of it instead, i.e. run a deficit. I'm fine with that, being a Keynesian and all.

But here's the thing: it matters what government spends money on, and it matters who it collects (or does not collect) taxes from. Government could spend $3T by hiring millions of people to write essays on political economy. Or it could spend $3T by hiring a dozen people to do the same thing. The same $3T would be going into the "private economy" in either case. Never mind whether the government's spending is "productive" in the sense of purchasing something of lasting value in either case. The same $3T would be going into the private economy. The recipients, as private-sector consumers, would "stimulate" Dunkin Donuts, or General Motors, or Microsoft, or Wal*Mart -- but differently in the two cases.

Now substitute "tax cuts" for "payments to write essays on political economy". See if you can figure out what I'm driving at.

--TP

[Carleton Wu]

but the supply side economics drove the growth that gave the Congress the ability to create the surplus. It strikes me that we can't talk about thirty years of supply side policy and then say "except for that time Clinton was there".

Im curious what you think "supply side economics" means.
As to what 'created the surplus', that's pretty clear- economic growth and higher taxes. Here is a nice chart of federal revenues as a % of GDP. The surplus period is at the end of the Clinton presidency, just before this metric peaks with the Bush tax cuts.
As Bernard says, there's not actually evidence that tax cuts stimulate the economy in some gargantuan sense that leads to huge growth. So Clinton's raising taxes meant more money for the federal government, which meant a historic (since the Reagan years) chance to pay down our ballooning debt.

Here are the facts, the original Bush tax cuts were designed to give back a projected 4 trillion dollar plus surplus, generated by supply side economics.

Bush did run on giving money back to the (wealthier) people rather than paying down the deficit- the absolute height of fiscal irresponsibility, since the last thing a roaring economy needs is a tax cut. If Bush really wanted a smaller government, that would've been the perfect time to cut some spending wo damaging the economy, but we all know that "cut taxes and spending" means "cut taxes now and cut spending later".
But this 'give the surplus money back' tax cut morphed to a stimulatory tax cut policy when the economy tanked around the time he took office- it turns out that, no matter what the economic situation, the prescription was tax cuts... at the time, that seems humorous. Not so much now.

[Jacob Davies]

The Anti-Orwell Brigade: Seriously, it's the Democratic party, and if you vote for them, you're voting Democratic. It's not the Democrat party, unless you're from Fox News.

I generally would let this kind of intense stupidity slide, but it's Get The Hell Out Of Dodge day at the house we just moved from and I'm tired and cranky after loading the first of what will probably be three gigantic, Okie-style truckloads of crap* without assistance, so let me just say a few things:

1. The use of the term "Democrat" to describe a generic member of the Democratic party is in no way an offensive use of the term, is frequently used by actual Democrats, and to my ear is more grammatically correct in the phrase than "vote Democratic". The equivalent for a singular member of the Republican party is "Republican" so the choice doesn't have to be made there. You might also consider that I made a choice between "Democrat" and "Democratic" and picked the former, in part, because I was addressing Republicans.

2. You know why Fox News calls it the "Democrat Party"? Because every time some simpleton like you gets upset about it they get to laugh and laugh. You call people names to upset them. The trick is not to get upset.

3. Rather than claiming that this is an "Orwellian" attempt to rewrite language, perhaps you should try phrasing your point of view as a polite disagreement. And

4. If you decide to hork up another hairball, I suggest it include the words "I apologize" and that you post it with a pseudonym that isn't completely ridiculous when addressing a Democratic partisan - you might have guessed I'm a Democratic partisan, you see, from the way I was exhorting people to vote for Democrats. Any more trivialities like the previous comment will be deleted. Or worse, I might tell you what I really think.

* I (heart) the American full-size pickup truck:

Now, back to the regular scheduled "arguing about the actual subject of the post", if you don't mind.

[Nate]

Marty: "All of those great multipliers everyone talked about in terms of the first stimulus were great, but they mostly sustained fed, state and local spending without significantly growing the private economy."

You mean the state and local spending that say, pays for schools (25%+ cuts for regular and higher ed over the last three years here in GA, thousands of teachers laid off in many different states), that was cut down by Ben Nelson and other "moderates", who wanted to be to show off their moderate-ness by making the bill worse to by cutting an arbitrary amount from the stimulus? Seriously, if you're going to claim something, at least look and see if it's true, first.

Marty: "Here are the facts, the original Bush tax cuts were designed to give back a projected 4 trillion dollar plus surplus, generated by supply side economics." Crap and a half. The surplus was generated by the Clinton tax increases and the internet boom. And instead of doing the "fiscally conservative" thing and paying down some of the debt with the surplus, the Republicans gave it away to the people already making the most.

Matt Yglesias has been beating this drum over at his site for months now, that Republicans care a lot more about tax cuts, especially for the highest brackets, than they do about deficits. At least until a Democrat's in office, but I bet a Democrat proposing irresponsible tax cuts for people making 5 or more times the median wage is the only thing that could get any "bipartisan" Republican votes.

Also, I should note that cutting deficits and paying off debt during good times is, literally, textbook Keynesian economics.

[Marty]

Yeah Jacob! A PC hair I regularly have to reread to make sure I split it correctly. Hopefully for all time the inferred insult will be forgiven as an oversight rather than intentional.

Although I promise to continue to try my best to comply.

[Nate]

On the subject of the original post, some of the comments from the op-ed sound very much like the Austrian Business Cycle nonsense. Especially the line about "vulgar Keynesianism", because Keynes' economic theories aren't about constant deficit spending, it's about deficit spending to make up the shortfall during recessions, then paying down the debt (by say, economic growth, or tax increases, or shrinking some programs that aren't as necessary now) when times are good.

Plus there's the obsession with "hard money", backed by gold, which is exactly as arbitrary as money backed by government promises, except instead of the money supply being under the control of the Fed, it's under the control of the balance of extraction and industrial uses for gold. If you want a real hard currency, the best place to look would be ideas from environmental economics, like basing the economy around some percentage of the total solar energy influx on the Earth. (Which makes our use of fossil fuels for analogous to running our economy out of our savings accounts). Plus all the comments about austerity, which this is exactly NOT the time for.

Also, this line? "In 1970 it was just 40 percent of gross domestic product, or about $425 billion. When it reaches $18 trillion, it will be 40 times greater than in 1970." I checked on this inflation calculator, and $425 billion in 1970 would be $2,322 billion in 2009, so, 2.3 billion. That's about 8 times, not 40. So his numbers are wrong, and inflated to try and sound scary. Also, in terms of GDP, from here, the US debt is around 93% of GDP including the Social Security Trust Fund, and about 60% for Publicly held debt. Also not 40 times what it was in 1970. That whole sentence is dishonest and loaded to try and sound scary.

"As a result, the combined assets of conventional banks and the so-called shadow banking system (including investment banks and finance companies) grew from a mere $500 billion in 1970 to $30 trillion by September 2008." This is bigger than the US debt, and maybe had more of an affect on the economy than the debt? Never know it from the article.

"It is not surprising, then, that during the last bubble (from 2002 to 2006) the top 1 percent of Americans — paid mainly from the Wall Street casino — received two-thirds of the gain in national income, while the bottom 90 percent — mainly dependent on Main Street’s shrinking economy — got only 12 percent. This growing wealth gap is not the market’s fault. It’s the decaying fruit of bad economic policy. "

This line I agree with almost completely, and I would say that this is actually MORE at fault than deficits. The concentration of income and wealth distorted the economy, and pushed investment by this tiny slice of the country into things that would make "enough" profit to be worthwhile, enough defined as usually in the range of 8-10%. This is why companies kept "right-sizing" during the 90s, even when they were perfectly profitable anyway. The executives were 'extracting value' for the shareholders (and themselves). That's what has hit lots of things like local papers, once they got bought out, their 2-3% profit margins weren't good enough for the new owners, so people got laid off, news wire reports instead of reporting, and the local sections kept getting slimmed down. Oh, and they kept shrinking the comics pages, too. Same with radio and TV. And that's what drove the whole "innovation" of CDS and all the mortgage bundling crap, there was demand for things paying 8-10% return, more demand than actual investments like that existed. That's how Bernie Madoff kept finding suckers.

"Under these circumstances, it’s a pity that the modern Republican Party offers the American people an irrelevant platform of recycled Keynesianism when the old approach — balanced budgets, sound money and financial discipline — is needed more than ever." This is total crap. The Republicans aren't promoting Keynesianism, they're promoting austerity, which is what this guy is promoting. Austerity and the resulting layoffs and losses won't fix the recession, they'll make it worse. What's needed is aid that goes to the actual working people, not the kind that just gets siphoned onto the balance sheets of banks and the bonuses for CEOs and dividends for the stockholders, while the banks aren't loaning and are foreclosing on houses.

I agree with your point that if somebody is serious about long-term balanced budgets, then the Republican Party is not their home. But this op-ed is full of Austrian business cycle hard money fetishism.

(Sorry for going off like that, but there's been a number of Austrian Theory folks over at Matt Yglesias's for months, repeating the same nonsense about "hard money" over and over for months, and ignoring any holes poked in their ideas. Also, the article dishonestly uses numbers, and pushes things that would make the recession worse.)

[bobbyp]

Marty claim: Supply side economics created the most stable 30 year period for the economy in our history.

A breathtaking claim, the mendacity of which is equaled only by an utter ignorance of the facts. I would stack up the period 1945-75 against that period any time, and you could keep the change.

Reagan cut taxes for the rich and raised them for the poor and middle class. Bush just cut taxes for the rich and some of the middle class. They both spent like drunks on a fall off the wagon drinking spree, and spent it all on the wrong stuff--defense and war, the future of this country be damned. Clinton was not much better, and was the recipient of a well timed economic boom. Now cast your eyes on the wreckage that are the direct result of these reckless policies.

It is beyond-all-sense-of reason-claims such as these that continually reinforces my contempt for what passes for so called "conservative" thought these days.

[russell]

the original Bush tax cuts were designed to give back a projected 4 trillion dollar plus surplus, generated by supply side economics.

That's a pretty strong claim for supply side economics.

Here is what I've never understood about supply side theory. How does removing impediments to production spur demand?

Is the idea that there's all this potential, latent demand out there, and all we need do is make it easier for producers to put product on the market?

I've been trying to get my head around that one for just about 30 years.

[jrudkis]

The expansion of our financial sector has been vast and unproductive. Stockman blames (tho but not by name): ...2) Phil Gramm, for removing traditional restrictions on leverage and speculation.

• The shadow banking system grew from a mere $500 billion in 1970 to $30 trillion by September 2008 (see Gramm, above).

is this referring to the bi-partisan bill Clinton signed, and was endorsed by much of Obama's current econ team at the time?

[CaseyL]

The upper 5% carry more political weight than the other 95% of the populace.

The upper 5% do not need a fully functioning US; they barely need a US that functions at all. They can have, and do have, access to their own education system (private), their own healthcare (concierge and/or international), their own security services (private), and their own consumer goods providers (catalog, international, and upscale US purveyors).

They don't need Medicare, or Social Security; and so don't particularly care if those programs live or die. They don't need abortion to be legal in this country, since they can go to any country where abortion is legal. They don't need same sex marriage to be legal in this country, since they have the financial and legal resources to protect their same-sex spouses (cf Mary Cheney). They most assuredly don't need healthcare reform.

They do not mix with the other 95%, nor permit their children to do so. That way, neither they nor their children need ever know or care about what happens to the other 95%.

About all they do "need" from the rest of the country is a military capable of protecting their territorial security - and, surprise, the military budget is sacrosanct.

The upper 5% control the debate by virtue of owning the parent companies of most of our news media outlets, and by being the primary contributors to political campaigns - esp. now that Citizens United has removed the limits on corporate contributions to politicians.

To make matters more... interesting, they have no particularly deep emotional attachment to the idea of America. The US was founded entirely on ideas: ideas about self-government, public good, common welfare, and other collectivist nonsense. The great irony is that the US - being based on an idea, and being populated almost entirely by immigrants - does not have, inherently, any tribal, ethnographic, or ancient historical identity to propagate a feeling of "nationhood."

The people currently in charge of the US economy do not, therefore, have any vested interest in seeing the nation as a whole be prosperous. They can do just fine in a banana republic.

I don't see any reason for that to change. In fact - as environmental change and peak oil and whatnot make maintaining our current standard of living damn near impossible - they will very likely be even more protective of the privileges they want to continue enjoying, and care even less about the rest of us.

Nothing is going to change until the plutocracy's controlling interest in politicians ends. And that's simply not going to happen - particularly when 30% of the electorate, for reasons which escape me, continue to support policies which do them no good at all; who are concentrated in areas where they comprise an actual majority of voters, and therefore continue to elect politicians who appeal to their tribal instincts while selling them down the river to the upper 5%.

[wonkie]

Why the thirty percenters support hte five percenters: it's the peasant mentality. They think if they kiss up to the power structure, some crumbs will fall their way. Also by identifying upwards they get the ego gratification of feeling superior to other people.

Competition at the bottom of a heirarchy can get pretty damn hot. No one wants to be at the absolute bottom. One way to keep from feeling like an absolute loser is to identify up and define others as losers.

The oligarchs understand this. Remember the dead peasant tax?

[wj]

the original Bush tax cuts were designed to give back a projected 4 trillion dollar plus surplus, generated by supply side economics.

And the reason not to use that projected surplus to first pay off the existing (enormous) government debt was what exactly?

If the government had zero debt, then it would make sense to cut taxes; or at least have a discussion of the merits of cutting taxes vs. doing stuff that the government hadn't done before. But since the government was seriously in debt, what possible reason was there not to pay it off?

If I went out, every time I got a raise, and cut my working hours (i.e. reduced my income, like a tax cut does) or spent it, without first paying off my debts, I'd be an idiot. How do you see the government as different in that regard, Marty?

[Carleton Wu]

Here is what I've never understood about supply side theory. How does removing impediments to production spur demand?

russell, meet Say's Law, which Keynes restated as "supply creates its own demand".

And the reason not to use that projected surplus to first pay off the existing (enormous) government debt was what exactly?

Hilariously, the concern was that we were going to pay down the deficit too quickly. What were we going to do with all that extra money? Fortunately, Bush II delivered us from that fiscal nightmare.

[Mike Schilling]

This is nothing new. You might recall that David Stockman called BS early in Reagan's first term. It accomplished nothing then and will no doubt do the same now.

[russell]

russell, meet Say's Law, which Keynes restated as "supply creates its own demand".

Thanks Carleton.

I had run across Say's Law before, but I have to confess I don't understand it. Time to put the thinking cap on.

[Brett Bellmore]

" I would stack up the period 1945-75 against that period any time, and you could keep the change."

And all we need to do to replicate that period is to somehow destroy the industrial base of the rest of the world, while leaving our's intact. Regrettably, given the widespread existence of nuclear weapons, I don't see how that can be accomplished... It's certainly not proof of the validity of any particular approach to economics, though.

I will gladly agree that the last 30 years is not a ringing endorsement of the notion that Republican officeholders are a lot more fiscally conservative than Democratic officeholders. Indeed, the main lesson of '94 was that, if you gave the GOP a chance to actually deliver on it's conservative promises, it would take a dive every time.

That's why the tea party movement is so down on Republican incumbents, and why the GOP is so desperate to co-opt it. They're trying to change the GOP, replace people who only talk the talk with people who will walk it, too. And the Republican establishment is desperate to prevent that from happening, while wanting to somehow harness the movement's energy anyway.

[wj]

Carleton, I remember that argument for the tax cuts. But my curiosity was how Marty rationalizes them. Since he's presenting a theoretical justification, it seems like he should have something.

Perhaps that a tax cut would increase tax revenues -- except that the deficit increased afterwards. Or perhaps that lack of a tax cut would allow the government to spend more -- except having one doesn't seem to have headed of Medicare D. I honestly am curious about his reasoning. Not to mention that, if he happens to be one of those who believe that tax cuts will actually increase tax revenues, why would he want one when the "problem" is a surplus? Inquiring minds want to know.

[Tyro]

the supply side economics drove the growth

Really, Marty? After all this, you really believe all of that?

They're trying to change the GOP,

No, really, they aren't. They are the GOP. Simply the GOP that's pissed off that the GOP lost.

The upper 5% do not need a fully functioning US

This is so true. You just have to look at other, dysfunctional countries. Ones where there's an elite 5% surrounded by deprivation and mass inequality are the ones that stay. The rest are the ones trying to emigrate. Why? Because for the top 5%, the system works. We Americans are the descendants of those who said, "screw this messed up system in our home countries where the deck is stacked against us. I'm leaving for better opportunities." You'd think that we, as a country, would be interested in not duplicating the social problems of the countries our ancestors left.

[UncertaintyVicePrincipal]

And all we need to do to replicate that period is to somehow destroy the industrial base of the rest of the world, while leaving our's intact.

There's a fallacy here that I see repeated often, the idea that we grew from 1945 not primarily because we had pumped an enormous amount of stimulus to get the economy going, but primarily because the rest of the world "was in ruins" and so we could just have the run of the place.

The fallacy involves ignoring the fact that, in what was already a global economy at that point, while the rest of the world were our competitors, they were also our customers.

Their lack of money to buy whatever we were selling was as much a potential hindrance on our growth as a stimulus to it.

Sure, we could sell things to ourselves inside our borders, but that's both directly affected by our having pumped all that money into our economy through the war effort and entirely independent of what shape other economies were in.

Besides, the "we won because they were in ruins" claim relies entirely on the idea that it was already a global economy, but it misses the fact that competition globally is impossible if no one else had any money to buy your products.

On balance I'd say the effect is a wash, which leaves the enormous stimulus we had pumped into our economy as the reason for the growth from 1945 forward.

Strange argument, though that doesn't seem to diminish how often I see it used.

One caveat: if this argument were limiting itself to saying "We did better than some European countries in that period because our country and its factories weren't literally smoking ruins and theirs were" that of course would be true.

However the argument that I'm rejecting is always put forth as a way of refuting that the stimulus of WWII war effort had anything to do with the growth, and claims that we had unusual growth simply due to the fact that we didn't have competitors, like the argument I'm responding to here: "All we have to do to repeat that growth is destroy the industrial base of the rest of the world" and we'll magically have that sort of growth.

Nope. It's not the reason we had it then, and it wouldn't create it now, if we didn't have enough stimulus. All of which we're seeing played out right in front of us, right now.

[McKinneyTexas]

JD, check out the deficit growth from '07 to the present and see who controlled both houses and, of course, the White House after '08. During the Reagan and Bush Sr. years, the Dems had at least one one house the entire time.

Fairness holds that both parties accept their share of responsibility.

It was the Dems who put SS tax income into the general fund with the fiction of IOU's to fake a asset. Fiscal responsibility was a Republican characteristic. That changed with GWB. Along with a lot of other things that drove me and many other generic conservatives out of the party.

There seems to be a move back in some quarters toward fiscal sanity. It's a nonstarter though, because the Repubs do not have a viable candidate who lacks the baggage to credibly bring the party back. Plus, the base has lost its mind, if it ever had one.

But, as for trusting the Dems with the keys to vault. No thanks. I choose option C--None of the Above.

[JanieM]

"supply creates its own demand".

This is a lot like the idea that invention is the mother of necessity (see Guns, Germs, and Steel).

And what do you think the advertising industry is for? We certainly don't "need" http://www.amazon.com/Material-World-Global-Family-Portrait/dp/0871564300>all this stuff.

[ajay]

JD, check out the deficit growth from '07 to the present and see who controlled both houses and, of course, the White House after '08.

You don't think the massive economic crisis that began in '07 might have had something to do with that as well?

It was the Dems who put SS tax income into the general fund with the fiction of IOU's to fake a asset.

Oh, God, this one just won't die, will it. An IOU from the US government is a T-bill. IT IS THE SINGLE SAFEST, MOST SOLID, MOST RELIABLE FINANCIAL ASSET IN THE ENTIRE HISTORY OF THE WORLD.

Fiscal responsibility was a Republican characteristic. That changed with GWB.

Oh, God, this one apparently won't die either. What happened to the deficit under Reagan, McK? Do you know? Now tell the class what happened to it under Clinton.

[bobbyp]

"And all we need to do to replicate that period is to somehow destroy the industrial base of the rest of the world, while leaving our's intact.."

Balderdash. What UVP said above. The rest of the industrial world being in ruins did nothing to "spur" US post-war economic growth. If anything, such a situation would hinder growth (no efficiencies from comparative advantage, for example). Similarly, most everybody pretty much agrees a "beggar thy neighbor" trade policy, if adopted by all, would be an economic disaster (1930's, which see). Yet that is exactly what you are asserting...that if our economy was isolated, growth would be enhanced.

How utterly strange.

[bobbyp]

The upper 5% do not need a fully functioning US

Yep. See Krugman's column today.

[Nate]

Not to mention, one of our biggest investments when the rest of the world's industrial sectors were in ruin?

Rebuilding the industry in those countries. The Marshall Plan for Europe, and we did broadly similar stuff in Japan, too.

[Hartmut]

There are (typically RW) people that consider rebuilding Europe and Japan the greatest error of all time (apart from not giving the Nazis their weapons back to jointly march on Moscow). How could you help your competitors instead of crushing them an making them totally dependent on you?

[Jacob Davies]

I should have added a caveat to this noting that I don't believe any of the hard-money stuff myself, although I don't believe in accelerating expansion of the deficit either. But I'm a Keynesian myself. However, if you are a traditional fiscal conservative his points are damning.

I do agree with him that the tax cuts were "vulgar Keynesianism" - that is, their stimulative effect on the economy, such as it was, came entirely from their effect on aggregate demand and not at all on their effect on producers. In the case of GWB, they were combined with ultra-low interest rates to pump what little economic expansion there was.

McKT, sadly, there is no option C, and that's the point: you have to vote for whichever of A or B is most likely to move things in the direction you prefer. Or abstain and let other people decide.

Marty, as others have noted, the Reagan boom was caused by the killing of inflation, a massive drop in interest rates, and a large bump in government spending. In other words, it was basically a Keynesian exercise too.

[McKinneyTexas]

What happened to the deficit under Reagan, McK? Do you know? Now tell the class what happened to it under Clinton.

Under Reagan, with a Democratic house, the deficit went up. I have to work today and lack the research skills to do this in a timely manner, but it is my distinct recollection that every year during the Reagan administration, the White House would propose one budget, a relatively lower one, and the Dems would propose a much higher budget. The compromise still produced a deficit.

What happened under Clinton? Several things: defense spending dropped significantly, we had the dot-com boom, the cost of borrowing dropped consistently (fueling the economy with cheap[er] money), the accounting scandals (Enron was one of many) pumped up balance sheets and, after '94, you had gridlock which produced budget compromises that held down spending more or less.

An IOU from the US government is a T-bill. IT IS THE SINGLE SAFEST, MOST SOLID, MOST RELIABLE FINANCIAL ASSET IN THE ENTIRE HISTORY OF THE WORLD.

It won't die because it's alive (IT'S ALIVE!!!). Every dollar "borrowed" from SS is a debt obligation. The offsetting asset, i.e. the IOU, is funny money. I can't create an asset by lending money to myself and the gov't can't either.

[McKinneyTexas]

There are (typically RW) people that consider rebuilding Europe and Japan the greatest error of all time (apart from not giving the Nazis their weapons back to jointly march on Moscow).

It's a vanishingly small number and the left/right dichotomy doesn't work here. It's the nut fringe, if it exists at all. Hartmut, this is a big reach.

[McKinneyTexas]

McKT, sadly, there is no option C, and that's the point: you have to vote for whichever of A or B is most likely to move things in the direction you prefer. Or abstain and let other people decide.

Marty, as others have noted, the Reagan boom was caused by the killing of inflation, a massive drop in interest rates, and a large bump in government spending. In other words, it was basically a Keynesian exercise too.

Yes, I know, I have to vote. But if the choice for fixing the problem is A or B, then it's not a choice, or at least not much of one.

As for Reagan increasing gov't spending, the largest spending increases were in defense. Defense spending probably did stimulate the economy to a degree. More importantly, IMHO, he outspent the Sovs and materially aided the end of the Cold War (I know this will produce a lot of fan mail).

[russell]

I will gladly agree that the last 30 years is not a ringing endorsement of the notion that Republican officeholders are a lot more fiscally conservative than Democratic officeholders.

The reason for this is that, right about 30 years ago, Republicans hit upon the idea that deficits caused by tax cuts could be ignored.

Because taxes, especially business taxes, capital gains taxes, and income taxes on high earners, along with regulation, were impediments to production.

And if you removed impediments to production, then increased production would automatically cause the economy to grow (see the discussion on "Say's Law" above), and the growing economy would increase revenues more than enough to make up for what was lost through lowering taxes.

That's what's behind Cheney's "Reagan proved deficits don't matter", and it's what's behind Kyl's statement that we can ignore deficits caused by lowering taxes.

Ever since "supply side" economics came into fashion, I've been trying to understand WTF it's all about, by which I mean, how it's supposed to work.

Because to me it's fairly unintuitive.

What Say's Law actually appears to be saying, as best as I can make out, is that when someone produces something, they do so in order to use the income from it's sale to purchase other stuff that they, in turn, want.

So, "production creates demand".

But Say doesn't address what happens if nobody buys the first guy's widgets in the first place, other than to observe that the first guy will quickly be forced out of the widget business, and the means of production dedicated to his shop will find another, hopefully more renumerative, home.

Say also doesn't really account for the role of money and/or the supply of money in the overall picture. In what is commonly known as a "simplifying assumption", he ignores it.

And so, even though there is no place in Say's model for large scale, structural unemployment, or for surplus production or capacity, nonetheless those things exist.

I have no problem with the idea that sometimes, in particular, concrete circumstances, that impediments to production might be what is holding back economic growth. In those cases, we should ease or remove those impediments.

But the "supply side" gospel, that in all places and at all times the solution is to cut taxes, ease regulation, and ignore the resulting debt load when national revenue drops, is to my eye f***ing insane.

Or, rather, it's not insane, it's just self-serving cant, in the interest of people who earn high incomes and/or derive their income from investments.

The Republicans of the last 30 years *have not* failed to live according to their principles. They have changed their principles, from those of fiscal responsibility to those of extracting wealth from the economy and putting it in their pockets.

So, yeah, it ain't your grand-dad's Republican party anymore, but that's by intent, not by a failure to live up to their own creed.

Their creed has changed.

[hairshirthedonist]

Say also doesn't really account for the role of money and/or the supply of money in the overall picture. In what is commonly known as a "simplifying assumption", he ignores it.

And so, even though there is no place in Say's model for large scale, structural unemployment, or for surplus production or capacity, nonetheless those things exist.

I didn't feel like creating a link, so go here, if you like:

http://en.wikipedia.org/wiki/Theory_of_the_Second_Best

This theory is quite clarifying for a great many economic conundrums, or, pehaps, the conundrum that is economics, itself.

[Nate]

That Theory of Second Best sounds like a description of local maxima, where there's several stable states, and getting from one local optimum to another will entail going down first, before rising back above the old maximum.

[russell]

A walk down memory lane, the 1956 Republican Party National Platform.

I have no desire to return to the America of 1956. It wasn't a particularly good place for women, gay people, or racial, ethnic, or religious minorities. It was a time of profound political and social paranoia.

But it was a place where "conservative" included the idea that the federal government should extend itself for the benefit of working people, and for the broad public good.

Show me a Republican platform like that one, and maybe we can talk about "fiscal responsibility" and "conservative values".

[hairshirthedonist]

I think of more as an explanation for the failure of ideal models as stand-ins for real-world phenomena. If you have some number of assumptions, as soon as one of them isn't met, any number of the others may become invalid in terms of getting as close to optimal as is possible given the unmet one (if that's at all clear to anyone but me).

In other words, you can't say "Well, we've met 9 out of 10 of our assumptions, so the model will be 90% right, which is still better than anything else." Most likely, it will be worse than 90% right, and there will be other scenarios, deviating even further from the model's assumptions, that will work out better.

This appears to be a wide-spread problem in the field of economics from what I've read over the years, before even being aware of the Theory of the Second Best, which gave me that "so I'm not crazy?" feeling when I came upon it.

[Carleton Wu]

More importantly, IMHO, he outspent the Sovs and materially aided the end of the Cold War (I know this will produce a lot of fan mail).

McK, Im pretty sure the USSR was in its death spiral by the mid-80s- it may have wrecked itself trying to keep up while using a bad economic model, but I don't see how Reagan could've caused this without a time machine.

One thing has always mystified me about Communism- it's a pretty bad system. And even in the 80s most people knew this.
But the ones who were the most frightened of the Communists' economic might, the "Team B" folks who were exaggerating the threat beyond even the overestimates of the CIA, were the ones preaching that Communism was an incredibly inefficient and clumsy way to run an economy.
I could never square that circle. At least, rationally.

[Carleton Wu]

Say also doesn't really account for the role of money and/or the supply of money in the overall picture

Krugman gives a great example of baby-sitting coop in a recession that I think is useful for illustrating the principle.

[Nate]

hsh: Ah, that makes a bit more sense, I was misinterpreting the wikipedia article. Yeah, with any model of reality, if your assumptions are wrong, then the answers you get are going to be wrong.

[Carleton Wu]

But it was a place where "conservative" included the idea that the federal government should extend itself for the benefit of working people, and for the broad public good.

I think there is some of that. Or, rather, I think the biggest problem is that Republicans have learned that "cutting taxes" just about always polls well, regardless of whether it's appropriate fiscally.
But I also see another root to the problem, going back to the Reagan era: the GOP is half-heartedly devoted to the idea of shrinking the government- rolling back Social Security, medicare/medicaid, etc. I say half-heartedly because they know that these programs are incredibly popular & it would wreck the party to dismantle them, but ideologically they cannot abandon the principles that lead to this opposition.
So they never reconcile their fiscal position (ie lower taxes and lower spending) with the reality that they have no intent to dismantle the social safety net. Reagan cut taxes, and *wanted* in his heart of hearts to dismantle those programs, but I suspect that he (and his descendants today) know that they will do no such thing. Yet they cannot bring themselves to abandon the other (and much more popular) half of their old principle, lower taxes. Bush II cut taxes and *added* to the social safety net, when dismantling social security turned out to be the third rail it had always been described as.
So we end up with the GOP advocating an impossible policy- low taxes and big safety net. What we need is a conservative party more like that in the UK, where it comes to terms with the existing social spending.

Or, once and for all, cut it and let the public decide if they'd rather have low taxes and weak social services, or higher taxes and strong social services.

[bobbyp]

"I can't create an asset by lending money to myself and the gov't can't either."

Under our current fiat money system, issuing debt (Treasuries) is simply a way to satisfy the public's liquidity preferences and control interest rates. It is also a public subsidy to the bond market (Wall Street).

The federal government is financially unconstrained. Only the government can create net financial assets (but we've had this discussion before).

[Slartibartfast]

Im pretty sure the USSR was in its death spiral by the mid-80s

Really? I'm guessing the US Department of Defense was just about eight years behind that news, then.

But if you look at the acquisitions strategy of the US military, they were taking Soviet forces seriously long after the collaps of the USSR. Or pretending to.

Missile defense was just starting its upswing in 1985. Somebody was taking the Soviet Union seriously. Its ICBM force was, as far as we knew, relatively intact.

[Nate]

If you look back and the Cold War, the US defense establishment had a tendency to systematically overestimate the Soviet military and especially economic power. The non-existent "missile gap" that contributed to the Cuban Missile Crisis, for instance. How much of this is due to incompetence, or trying to justify their jobs, or the general difficulty, given the Soviet Union's reasons to misrepresent things I leave up to the readers to decide.

[McKinneyTexas]

But the ones who were the most frightened of the Communists' economic might

What follows is entirely off topic:

I don't remember anyone worrying about Soviet economic might. Military might, yes. Economic, not so much, or even at all.

As for the death spiral, that's a look back in the rear view mirror. In the 80's it was all doom and gloom, nuclear winter, nuclear freeze, get the Pershings out of Europe, blah, blah, blah, from the left, none of it rationally related to the balance of Warsaw Pact/NATO forces. Everyone else favored the Reagan build up.

What Reagan's build up did was convince a clique within the politburo that the soviet economy couldn't keep up with the west on military spending. Glasnost, Gorbachev etc. all flowed from that. Again, IMHO, with which many here will likely disagree, should this off-topic topic take on any life.

[McKinneyTexas]

The non-existent "missile gap" that contributed to the Cuban Missile Crisis, for instance.

Yes, that 1959-60 debating point remained a mainstay throughout the Cold War. Uh, not really. No one miscounted Soviet tanks or standing divisions. They were a fact. A big ass fact. The fear among US thinkers was that NATO's inability to withstand a conventional attack would so lower the tactical nuke threshold that a general exchange would then become likely.

[Slartibartfast]

The non-existent "missile gap" that contributed to the Cuban Missile Crisis, for instance.

Eh? I don't know what one of those could possibly have to do with the other. The issue in Cuba was missiles nearby, not that they had more missiles than we did.

[ajay]

Every dollar "borrowed" from SS is a debt obligation. The offsetting asset, i.e. the IOU, is funny money. I can't create an asset by lending money to myself and the gov't can't either.

OK, it's funny money. So when Social Security starts selling off its holdings of T-bills to pay for the boomers' retirements, no one's going to buy them? If the Social Security fund had been invested in, say, gold, that's what it would do with the gold. Same if it had been invested in anything else. Why wouldn't that apply to T-bills?

[bobbyp]

"What Reagan's build up did was convince a clique within the politburo that the soviet economy couldn't keep up with the west on military spending."

Not even close. The Soviet economy was crumbling and not competitive. Even the die-hards on the Politburo knew this. The question was reform.

The world wide fall in oil prices ended Soviet export capability, and pretty much finished the job. The USSR's nuclear deterrent capability was not diminished by US arms spending or "star wars" hallucinations.

[Carleton Wu]

Im pretty sure the USSR was in its death spiral by the mid-80s

Really? I'm guessing the US Department of Defense was just about eight years behind that news, then.
and
As for the death spiral, that's a look back in the rear view mirror.

I didn't say it was known in the West, or even by many in the USSR. Just that I think the USSR was already prepared to come apart by the mid-80s, so it's hard for me to see how Reagan's budget-busting military spending could've been causative.

But if you look at the acquisitions strategy of the US military, they were taking Soviet forces seriously long after the collaps of the USSR. Or pretending to.

Well, yeah. I expect the people who make their living on defense spending to find ways to justify it. China was being groomed as the reason for spending, before 9/11 provided a set of ready-made villians. I don't think that this necessarily tracks with an objective assessment of threat level.

What Reagan's build up did was convince a clique within the politburo that the soviet economy couldn't keep up with the west on military spending. Glasnost, Gorbachev etc. all flowed from that.

With Mutual Assured Destruction, I don't see how this would follow. "We cannot build as many redundant missles as the Americans- ergo, we must abandon our economic system, our control of the states on our border, and change our political system to accomadate dissent." Certainly eg the North Koreans haven't abandoned totalitarianism or embraced democracy because they cannot keep up with the US militarily.
No, what happened in the USSR was almost entirely internal, based on the political and economic tensions within the Soviet Empire. Maybe Reagan sped it up a few years. Maybe he slowed it down a few years by giving the hardliners an enemy to oppose. But I find the idea that Reagan caused this t be entirely implausible- tacked on to history to justify the budget-busting of the 80s to defend us against an enemy who was on the verge of collapse.

[Sebastian]

"So when Social Security starts selling off its holdings of T-bills to pay for the boomers' retirements, no one's going to buy them? If the Social Security fund had been invested in, say, gold, that's what it would do with the gold. Same if it had been invested in anything else. Why wouldn't that apply to T-bills?"

No the problem is that when you sell them off and people redeem them you have to raise taxes to pay for them.

But anyway, fiscal conservatives should vote for people who actually care about the deficit, and the right times and methods of controlling it. By my rough estimation that would include very close to zero national level Republicans and a handful of national level Democrats. There are also an additional handful of national level Democrats who sometimes have non-awful instincts on the budget. So if you are lucky enough to have a district or state option to vote for one of those Democrats, you should do so.

The above state of affairs has nothing to do with going off the gold standard, and ideas that the gold standard provided more economic stability are rubbish. We might note that the Great Depression happened under the gold standard...

[Nate]

I don't want to wade to deep into the whole Soviet army thing, since a) I haven't done a terribly deep examination of it, b) my point was more directed at the economic side of things, where the entire US official apparatus kept predicting the Soviets were stronger than they were, c) pointing out that the CIA/NSA/DOD can be wrong or lie for their own benefit shouldn't be controversial at all, and d) I freely admit I could be wrong on some of the specifics.

And it's on economics I want to focus, because Reagan's military buildup, if it did anything, was just a final push that accelerated things. Reagan and Bush I's willingness to negotiate with Gorbachev, and try and make the transition something other than a crash was probably more notable. The real thing that defeated the Soviets in the Cold War? I would take David Brin's stance, that the Marshall Plan did it. By rebuilding Western Europe, and the comparisons between Western Europe's successful, well-off, and freer Social Democracies as opposed to the Soviet Union's failures in Eastern Europe, that kept Soviet-style communism from spreading, and prevented the same kinds of events that led to the rise of the Nazis, when we tried to punish the losers after WWI.

[Carleton Wu]

No one miscounted Soviet tanks or standing divisions. They were a fact. A big ass fact. The fear among US thinkers was that NATO's inability to withstand a conventional attack would so lower the tactical nuke threshold that a general exchange would then become likely.

First, meet Team B. Overestimating Soviet strength was a hobby of the CIA, but the Team B folks did it professionally, putting the CIA to shame. (And weirdly, didnt lose a shred of credibility- exaggeration of enemy resources in the defense of the defense industry is no vice).
(Also, btw- Fareed Zakaria notes, however, that the specific conclusions of the report "were wildly off the mark. Describing the Soviet Union, in 1976, as having “a large and expanding Gross National Product,” it predicted that it would modernize and expand its military at an awesome pace. For example, it predicted that the Backfire bomber 'probably will be produced in substantial numbers, with perhaps 500 aircraft off the line by early 1984.' In fact, the Soviets had 235 in 1984." So yes, some people were overestimating Soviet economic might. And yes, they were the same people who ought to have believed that Communism was terribly inefficient).

And the 'missle gap'- if your belief were correct, then the 'missle gap' would've been used to justify additional conventional forces. But it was, in fact, primarily used to justify additional *missles*. Really, Im not even sure your position makes sense- you are saying that the 'missle gap' was in fact a conventional forces gap?

[russell]

fiscal conservatives should vote for people who actually care about the deficit, and the right times and methods of controlling it. By my rough estimation that would include very close to zero national level Republicans and a handful of national level Democrats. There are also an additional handful of national level Democrats who sometimes have non-awful instincts on the budget. So if you are lucky enough to have a district or state option to vote for one of those Democrats, you should do so.

I was about to ask if, history of the Cold War aside, any conservatives here wanted to take issue with the basic idea that the D's are, at this point in time, a better bet for fiscal soundness than the R's.

And Sebastian beat me to it.

Thanks for a candid reply Seb.

[Phil]

Boy, there are times when this zombie Saint Ronnie Bankrupted the Soviets story comes back to life that I just want to pull Mikhail Gorbachev out from behind a pillar, Annie Hall style, to disabuse some people of some notions. You know, amazing as it is to think about, the USSR was actually a country with all kinds of internal concerns that were entirely unmotivated by anything to do with the US or Ronald Reagan.

[Slartibartfast]

I didn't say it was known in the West, or even by many in the USSR. Just that I think the USSR was already prepared to come apart by the mid-80s, so it's hard for me to see how Reagan's budget-busting military spending could've been causative.

Ah. Thanks for clarifying, Carleton.

'missle[sic] gap'

There was never any such thing. But I don't think you can blame it on Team B.

That aside, various points, to the effect that intelligence on the USSR military capabilities were variously wrong and/or deliberately misleading, are well taken.

[keatssycamore]

McKinneyinTexas,

Wasn't it Reagan (with an assist from Greenspan) who began the whole masking the deficit by creating the Social Security Trust Fund and accounting for it's surplus as part of the overall budget?

Why, as you criticize democrats on social security and deficits, have you ignored this tricky little deficit-hiding, accounting-fiction from '83?

Maybe b/c it was a Reagan/Greenspan creation?

I guess I'm saying I had always (since my early college days) believed the below accurately described Reagan's involvement with Social Security:

" You already "fixed" Social Security, in 1983. In that fix, Ronald Reagan and the Greenspan Commission (yep, Alan Greenspan) recommended increasing Social Security taxes on the middle class, but not on the Big Boys, the wealthy. The declared goal was to put tons of cash into the Social Security Trust Fund — create a huge rainy day stash — for when Boomers started retiring. (If you click the Trust Fund link, watch what happens to the last column, the total amount, starting in 1984.)

Why is it important to understand this?
Everyone making less than $100k per year has been paying for that fix — every working day since 1983. They robbed you once, so they wouldn't have to do it twice. Want them to do it twice?

3. Reagan used that earlier "fix" to hide much of his massive deficit, to make it look smaller. That was the real goal (or if you're feeling kind, the other real goal) of beefing up the Trust Fund.

But do you think either of them cared two twits about fixing the future, a future in which they themselves would be dead? The facts show just the opposite. What they really cared about was destroying the future — "starving the beast" in politer terms — while making it look like the beast was partially fed. They were also seriously into looting. Good little Randians are.

So it worked like this: The Reagan tax cuts steadily lowered the rate on the top dollars earned (keep that "top dollar" point in mind; mere mortals never saw those rates) from 70% to 50%, then to 28%. Those tax cuts, plus his massive spending, made the deficit rocket skyward. Mission accomplished; beast starving.

But how to make that deficit look smaller to the easily fooled? Simple. Grab a huge pile of cash from the middle class, invest that cash in Treasuries, and declare those Treasuries off-budget. Voilà — beast looks partially fed. Since the Trust Fund keeps growing (the 2008 number is $2.4 trillion), both the debt and the deficit have looked smaller ever since."

How to kill social security: Be ignorant about it

[russell]

The Reagan tax cuts steadily lowered the rate on the top dollars earned (keep that "top dollar" point in mind; mere mortals never saw those rates) from 70% to 50%, then to 28%.

Even this doesn't really tell the whole story.

It wasn't just a matter of lowering the marginal rate on the top dollar. It was a matter of just getting rid of the top rates.

So, if you made a lot of money, your top marginal rates went way down.

If you were lower class to middle class, your rates hardly changed at all.

It wasn't an across-the-board lowering of rates, it was a dramatic shift in the distribution of the rates regime to a much, much less progressive one.

Even more so when the cap on SS withholding is considered.

It was a gift to the wealthy.

[Hartmut]

McKT, the view that to rebuild Europe and Japan was an error had quite some followers at different times. For Europe it grew from general opposition to the Marshall plan. Can't say when it became a fringe position. For the idea that rearming the nazis would have been right, the top popularity was still in the 40ies, I'd say. For Japan I would put the main popularity at the time when Japanese electronics really began to make a dent and later with the cars (then it had turned more into 'let's have a trade war now'). I doubt that it was ever seriously considered by economists but it served well for demagoguery. And as for fringe, the GOP is currently overrun by nuts that work on a comeback of the John Birch Society (and try to revive the fluoridation scare). Fringe with megaphones is difficult to ignore.

[Lewis Carroll]

I found this a pretty convincing analysis of the relationship of Reagan to the fall of the SU:

http://www.washingtonmonthly.com/features/2004/0405.clark.html

[bobbyp]

It is not that the current crop of republicans is more reckless than their predecessors...it's that they wear their class based agenda so openly.

It is a class war, and the GOP knows which side it is on. Democrats who buy in to the "we can't afford it" meme are simply surrendering without a fight or actually share the GOP's class bias as having some kind of social validity.

Thus, I would argue, their alleged fiscal "superiority" is not really all that superior. In this respect I differ from Jacob's otherwise insightful post.

[hairshirthedonist]

That Wesley Clark piece was excellent, Lewis Carroll. Thanks.

[Kenneth Almquist]

"I have to work today and lack the research skills to do this in a timely manner, but it is my distinct recollection that every year during the Reagan administration, the White House would propose one budget, a relatively lower one, and the Dems would propose a much higher budget. The compromise still produced a deficit."

I fear your ideology is affecting your memory. The spending levels in the budgets passed by Congress were lower than in Reagan's budget proposals.

"It was Paul Volcker who crushed inflation and enabled a solid economic rebound."

About 10 years ago I read a study which concluded that stock markets around the world performed significantly better during periods of low inflation (or deflation) than during periods of high inflation (or deflation). So there is good reason to believe that the economic boom was caused by Paul Volcker crushing inflation. I haven't seen comparable evidence to suggest that supply side economics, however defined, deserves the credit.

[Carleton Wu]

I fear your ideology is affecting your memory. The spending levels in the budgets passed by Congress were lower than in Reagan's budget proposals.

Kenneth, do you have links? I don't remember one way or the other- wasn't in a position to, really.

[Tony P.]

It is not that the current crop of republicans is more reckless than their predecessors...it's that they wear their class based agenda so openly.

If you mean economic class, I'm not sure that "openly" is quite right.

Krugman once observed that Reagan did not deny that he was cutting taxes on the rich. He was more or less up front about it; it was the whole point of "supply side" economics.

Dubya, said Krugman, pretended that his tax cuts were NOT for the rich. The Rovian talking point was "$1100 tax relief for the average family". Krugman's response was the line about Bill Gates walking into a bar.

Dubya's acolytes then, who are still his acolytes now, were not what I would call "open" about their class allegiance. They were, and remain, explicit about their goal to un-tax everything except wages, but they are determined to pretend that they're doing it for the benefit of the wage-earning class.

--TP

[McKinneyTexas]

The spending levels in the budgets passed by Congress were lower than in Reagan's budget proposals.

It's not ideology, it's memory. Defective perhaps, but that is my memory. I quickly googled two articles. They go both ways. What would decide the issue would be a table, if it exists, showing congressionally proposed and administration proposed domestic spending, and then the actual numbers passed, and the same for defense spending for all of the Reagan/Bush I years.

If I'm wrong, I'll admit it forthwith.

[Jacob Davies]

DeLong says, of the original Stockman article:

Is budget arsonist David Stockman really claiming to be part of the fire department? And lecturing Republicans about responsibility?

And the New York Times enables this? Without a peep of context or complaint?

Since I don't subscribe to the underlying ideology, it doesn't much bother me that the Republican critics of Republican policy often turn out to be massive hypocrites who were guilty of exactly the things they're accusing others of. And whatever Stockman's own role, if you subscribe to the brand of hard-money fiscal conservatism he's talking about, I think his points have some weight.

I don't subscribe to it, but I try to understand those who do buy it and figure out what to say to them, since it's such a popular viewpoint (and since they infuriatingly seem to have infested the Democratic party as well).

Some of the better Republicans are good enough to apologize for their previous role, at least. I think Bruce Bartlett is one of those.

[Hogan]

Under Reagan, with a Democratic house, the deficit went up.

Of course in those days, before their current incarnation as intolerantly doctrinaire hard-left Islamophile elitists, the House Democrats still contained a good number of post-Dixiecrat boll weevils (including Phil Gramm, who was the House co-sponsor of Reagan's first budget), who consistently voted with Reagan on fiscal and defense issues. The Dems were nominally a majority, but the balance of power was held by the boll weevils and Republicans.

For all his posturing, I don't remember Reagan ever proposing a balanced budget.

[Tony P.]

What would decide the issue would be a table, if it exists, showing congressionally proposed and administration proposed domestic spending ...

I find such a table on page 96 of Al Franken's book "Lies and the Lying Liars Who Tell Them: a fair and balanced look at the right". Before you gag, Franken reproduces the table directly from Sean Hannity's book "Let Freedom Ring"; Hannity sources it to http://reagan.webteamone.com/reaganbudgets.html which you're welcome to look at if it's still up.

The bottom line is that in Reagan's 8 fiscal years, the Gipper proposed $7.357 trillion and Congress approved $7.554 trillion of spending. Congress overspent Reagan by 2.8%, if you believe Hannity's source -- a fellow named Tom Kottle who (in 2003, anyway) was running "The Ronald Reagan Homepage".

If you believe Franken's source, Tom Mann of the Brookings Institution, you go by the table on page 100 of Franken's book. The bottom line on that one: Reagan proposed $7.314 trillion, Congress actually SPENT $7.361 trillion, or 0.6% more.

The slight differences in the numbers are not the main difference in the two tables. The main difference is that Hannity's (meaning Kottle's) table had a column labelled "Cumulative % Difference", which compounded the year-by-year percentage differences and came out to a bottom line that Congress "cumulatively" approved 24.5% more than Reagan proposed. Mann's table replaces those entries in the table with "This is a totally bogus, piece of shit column".

Hard-core Republicans don't waste their time trying to deceive Democrats. It's rank-and-file Republicans they keep trying to fool with bogus, piece-of-shit "statistics".

--TP

[Uncle Kvetch]

The main difference is that Hannity's (meaning Kottle's) table had a column labelled "Cumulative % Difference", which compounded the year-by-year percentage differences and came out to a bottom line that Congress "cumulatively" approved 24.5% more than Reagan proposed.

Wow. The sheer chutzpah is almost admirable.

[nous]

TonyP -- That page is down, but it can be found at the Internet Wayback Machine:

http://web.archive.org/web/20040604135946/www.presidentreagan.info/reagan_budgets.cfm

Hopefully that works.

[Slartibartfast]

Cumulative % Difference

Innumeracy? Dishonesty? Really, I don't care which. Anyone who does something of this nature should be exposed & subsequently ignored until they've repented and, well, educated themselves up to the high school graduate level.

Otherwise: as if I needed another reason not to listen to Sean Hannity.

[Enrique Arroyo]

The main difference is that Hannity's (meaning Kottle's) table had a column labelled "Cumulative % Difference", which compounded the year-by-year percentage differences and came out to a bottom line that Congress "cumulatively" approved 24.5% more than Reagan proposed.

This reminds me of an argument that I had with a friend at lunch once. He mixed together some 1% and 2% milk from the cafeteria, and claimed that he had created 3% milk. I tried to explain that he had actually created 1.5% milk, but everyone else at the table sided with my friend, partly because it was "his milk" and partly because they didn't understand division. This was in the third grade.

[GoodOleBoy]

'I was about to ask if, history of the Cold War aside, any conservatives here wanted to take issue with the basic idea that the D's are, at this point in time, a better bet for fiscal soundness than the R's.

And Sebastian beat me to it.

Thanks for a candid reply Seb.'

I won't take issue with it but I'm not going to jump to affirm it either. I think most of the foregoing discussion about free spending and lack of concern for rising deficits applies equally well to a majority of both parties, albeit, perhaps, for different public reasons. I must conclude that the privately held reasons behind this behavior by the pols is to sustain their incumbency. So, like McKT, I don't like the choices, and I don't like them almost equally, but for a single aspect. That is the democrats are led by individuals who will create new major federal programs and powers with which I strongly disagree. That is why I cannot vote for a democratic candidate even when their positions on fiscal matters might be better than most republicans.

Someone upthread mentioned some odd behavior of typical republicans regarding safety net social programs like SS and Medicare. Here's my view. I don't favor these types of programs to be funded and administered at the federal level. Most of my objection can be explained by my aversion to size (anyone recall too big to fail?) and the concept of one solution fits all (anyone ever think flexibility in solving a problem can be helpful?). Big organizations running big programs are typically wasteful and unresponsive to their customers. If I had been of age when Social Security was created as a federal program, I think I would not have supported it, and in the sixties I did not support the creation of Medicare.

None of this means that I think government should not be involved in these kinds of programs. I'm a supporter of federalism and I believe these kinds of programs should have been left to states. Almost every week I can find some congressperson or senator introducing legislation on a matter that simply blows my mind as to how it was judged to be a federal government issue.

To sum up, how would anyone ever expect any federally elected official to control spending if we behave as if there is no conceivable limit on their legislative powers.

[McKinneyTexas]

T.P.--thanks for that. As you say, regardless of the numbers, neither variation seems significant. I stand corrected.

[russell]

Big organizations running big programs are typically wasteful and unresponsive to their customers.

Not necessarily disagreeing with this in general, but *in the specific case of SS*, this is not really so.

That is why I cannot vote for a democratic candidate even when their positions on fiscal matters might be better than most republicans.

That's your call, and it's a reasonable position given the preferences you're starting from.

[Tony P.]

Just for curiosity, GOB: how do you think 50 separate Social Security plans would deal with the pesky American habit of moving from one state to another? I mean, I know they could handle it; the only question is whether they would need EVEN MORE THAN 50 TIMES the bureaucrats that SS employs. Same question applies to Medicare, of course.

Also just for curiosity: why do you think efficiency-seeking private enterprises (e.g. McDonald's, Wal-Mart, etc.) don't seem interested in a "federalist" business model for themselves?

--TP

[GoodOleBoy]

'Just for curiosity, GOB: how do you think 50 separate Social Security plans would deal with the pesky American habit of moving from one state to another? I mean, I know they could handle it; the only question is whether they would need EVEN MORE THAN 50 TIMES the bureaucrats that SS employs. Same question applies to Medicare, of course.

Also just for curiosity: why do you think efficiency-seeking private enterprises (e.g. McDonald's, Wal-Mart, etc.) don't seem interested in a "federalist" business model for themselves?'

That's a complex hypothetical. If this had been left to the states, a number of varied approaches would likely have developed and under very different time frames. Two components, retirement and welfare, that exist in the current program would likely have had a number of variations as well. The retirement component might have been portable and the welfare component not.

How is this done in the European Union? Since those member states existed and had comparable social safety net programs at the state level prior to union. How are they handling this in the Union going forward?

On the business question, I know nothing about how Wal-Mart operates, but it is my understanding that McDonald's sells franchises which means there should be some sort of distributed decision-making scheme that would promote efficiency by recognizing different circumstances in different franchise locations.

I appreciate your questions, but too much speculation required to picture how the government programs might have evolved.

[bobbyp]

Dear GOB,

You are applying a cookie cutter yardstick (one size fits all, eh?)in a flailing attempt to fit your predispositions (I hate big stuff), but we all do that :)

If "big" was a concern, I'd expect to see something about big trans-national corporations that are essentially becoming governments unto themselves. Somehow you just must have overlooked that in your haste to condemn the federal government. After all the social and economic outrage that is MacDonalds is nothing compared to a 75 year old wildly successful program like Social Security.

And I take it you favor reckless spending on totally wasteful stuff by those who proclaim to the heavens their stout hearted opposition to big government over those who try to adopt sensible legislation with a modicum of central control and oversight that simply offends your sense of "how things 'should' be done"?

You will excuse me if I cannot bring myself to share that viewpoint.

[bobbyp]

"If you mean economic class, I'm not sure that "openly" is quite right."

hmmm...possibly. But the appeal is a bit more over the top than the post war GOP struggling to get back from the political wilderness of the Depression years. It reminds me more of the appeals made by Mark Hanna's GOP:

Freedome
We are a rich country full of rugged individualists
Freedom
You, too, could become rich
Freedom
Leave the rich alone, and they will leave you alone....

...did I mention the appeal to freedom?

I see this as a pretty naked appeal to let the rich have their way. There is no disguise here...perhaps the term misdirection is more appropriate.

[Lewis Carroll]

Hairshirt,

You're welcome.

I remember that that level of thinking was why I was a big Clarkie during the '04 primaries.

[Keatssycamore]

Goodoleboy wrote,

"None of this means that I think government should not be involved in these kinds of programs. I'm a supporter of federalism and I believe these kinds of programs should have been left to states."

I'm not certain I believe that politicians in state government are any wiser or responsible than those in federal government. Maybe because I've read so many stories like this one, Pension woes and state government largesse.

[Nate]

GOB: "That is the democrats are led by individuals who will create new major federal programs and powers with which I strongly disagree."

I suppose that's fair enough, if you don't consider military invasions, the TSA, and the kinds of federal level social restrictions the Republicans push to be "major federal programs."

Also, there is one very big reason that SS and Medicare are administered by the federal government, and not the states. If it had been left up to the states, old people in large portions of the South, like Mississippi, would probably have no kind of social safety net now. Also, during the 60s, those same states would certainly have denied any kind of social safety net spending to black people.

It's not about efficiency (though Social Security is one of THE most efficient programs around, 50 state versions would be less so), it's about the fact that we decided, as a nation, that old people deserve some freaking dignity, to not have to work until they die, and not live on cat food. Not just some old people, everybody across the country. Yes, Social Security started out smaller than it is today, and left out many occupations (partially to get support from racist Dixiecrats, which is why jobs like farm workers, that were disproportionately jobs occupied by black people were excluded), and wasn't perfect. But it's a damn sight better than what came before it. And what's come after it, given the performance of all the vaunted individual retirement stock funds, and corporations doing their best to divest their pensions.

Also, contrary to most claims, I suspect that state and local politicians are often less accountable to voters than federal ones. Especially with the deaths of local news sources, people are more likely less informed about their state government than the federal government. Look at how few can name their congresscritter. Now look at how even fewer can name their state reps. Local doesn't mean more accountability.

And if you want to argue about it on an economic basis, we can talk about the benefits from having old people live with their kids or not, and the benefits of retired workers still having some money coming in, and the efficiency and function of a low-grade social safety net.

But that's all a sideshow. The real point is the moral one, that everyone should be able to have some stability when they retire, and doing it state by state would leave a great many citizens of this country without one.

[Carleton Wu]

None of this means that I think government should not be involved in these kinds of programs. I'm a supporter of federalism and I believe these kinds of programs should have been left to states.

Ive always found that an odd ideological point; I can see a practical argument for doing certain activities at the appropriate level: plan your interstate highways at the federal level, set your bus schedules at the city/county level. Immigration and customs, federal. etc.
But I've never understood attaching a strong ideological preference to this sort of thing. That is, I don't understand how someone could be totally opposed- in principle- to a federal retirement program but seemingly ok with a state-run one.

[GoodOleBoy]

'If "big" was a concern, I'd expect to see something about big trans-national corporations that are essentially becoming governments unto themselves'

Premise here is incorrect. IMHO 'big' anything organizationally becomes problematic. This includes government, businesses, unions, non-profits, you name it. Examples here after government could include GM, AIG, GE, UAW, NEA, AARP. If anyone feels left out, please say so.

I'm not interested or trying to impose my preferences on others. Our federal government got to have the responsibilities assigned to it in a very specific way. Most of those that are clearly legitimate have been mismanaged as noted by some earlier in this thread. International conflict and immigration, for example. If our federal legislators could see their way to restrain themselves from acting as if everything is somehow their responsibility, then maybe they would become a little more adept at dealing with matters that ARE clearly their responsibility.

Nothing I said suggests that state politicians have talents, ethics, or perceptive skills exceeding those at the federal level, just that the people who are affected will be better able to exert influence.

I'm really interested if someone will comment on my questions on the European Union.

[GoodOleBoy]

Sorry that my points are drifting off topic. I tried to give some explanation to my response to Jacob's staightforward suggestion that fiscal conservatives should vote democrat.

The reason why not is that: A vote for a specific democrat (like Matheson in Utah, or Webb or Warner in Virginia) who claim to be fiscal watchdogs, is not just a vote for that person, but a vote for the legislation that will be presented by their leadership in Congress.

Legislation that will be enacted as a result (given that leadership is in control and has enough votes in the Senate) will not serve the preferences of the constituents who voted them in, in the above examples.

[Tony P.]

GOB, I salute you. You're right: party affiliation matters. I have been saying that (from the other side of the fence, of course) for decades. You can't vote for "the person" without voting for the party the person belongs to.

You can, for your own good reasons, vote for the party of Sarah Palin, Rush Limbaugh, and Pat Robertson. I can't. I just plain can not. If Solon himself were running on the GOP ticket, and running against a Democrat who was an obvious idiot or a convicted felon, the best I could manage would be to stay home. Very partisan of me, I know.

I feel a bit less embarassed to be so partisan when honest partisans on the other side (meaning you, not lying scum like Sean Hannity) frankly acknowledge their partisanship. So, thank you.

--TP

P.S.: You might imagine I'm being sarcastic. Trust me: just this once, at least, I swear I'm not.

[jonnybutter]

You can, [GOB] for your own good reasons, vote for the party of Sarah Palin, Rush Limbaugh, and Pat Robertson. I can't. I just plain can not.

Because I know you're a straight shooter, Tony P., I can tell you aren't being sarcastic here. But you are trying to make a sort of sotto voce argument ('party of Sarah Palin...etc'). And I think it's mostly hopeless (sorry Hilzoy).

Denial is boring. It's not amenable to argument. The closest you get to a counter argument is 'well, that's contrary to my ideology' - which is, of course, no argument at all; it's a means to forestall argument.

I'm glad Jacob made an entire post out of the point you raised the other day, and I admire the fortitude you guys have in trying to be convincing, but it's never going to work with some people (e.g. Marty, GOB). Denial not only isn't amenable to argument, it denies it.

'Partisanship' is also not really an argument, except perhaps in the opposite way to which GOB means it. The GOP used to be relatively diverse (i.e. ideologically less coherent). It isn't diverse now - it's practically a parliamentary party. A vote for any Republican really is a vote for Rush L., Sarah Palin, GW Bush and the rest. The dems, on the other hand, are much more diverse, ideologically. Does it make sense for fiscally conservative Republicans to vote for a Democratic party which is actually more fiscally conservative than the GOP of yore? Patently, yes. Most won't. 'Sense' has nothing to do with it.

Soldier on. Maybe it will help. But Denial gets stronger, not weaker, the more (rationally) obvious what's being denied is.

[hairshirthedonist]

But I've never understood attaching a strong ideological preference to this sort of thing. That is, I don't understand how someone could be totally opposed- in principle- to a federal retirement program but seemingly ok with a state-run one.

Me, too, CW. It seems to me to be a matter of practicality - simply what works best, but some people look on it in what appears to be a matter of something much like morality, or as though there's some natural law being violated. It's seems weird to me for people to have such strong preferences about things as dry as whether some governmental efforts should be handled at the federal or state level when those preferences are held for reasons other than specific functional ones (that is, you can't simply say that you think states are just better at stuff without discussing the specifics at hand).

Regarding the EU question, the EU is not a nation, even if it has some aspects of one. The members are sovereign and mostly pre-existed the EU.

[wonkie]

Ideologies function like fundamentalist religion: gives the believer an excuse never to think again because they already are convinced that they have all the answers.

Objective reality has no impact.

[jonnybutter]

Ideologies function like fundamentalist religion

They function *like* that, but it's misplaced.

I personally don't think that our constitutional guarantee of freedom of religion should render articles of religious faith sacrosanct from rational debate (the fact that it seems to is a big problem, IMO), but the fact remains that such articles are relatively difficult to prove or disprove. OTOH, articles of *political* faith are much easier to debate rationally - are, in fact, made for rational debate, since there's evidence, etc. For this reason, I call a refusal to debate them 'denial' rather than 'faith'.

[Hogan]

Nothing I said suggests that state politicians have talents, ethics, or perceptive skills exceeding those at the federal level, just that the people who are affected will be better able to exert influence.

Well, that cuts both ways: lobbyists for national and supranational interests have a much easier time suborning state legislators than congresspersons; the prices are lower. And it's not even like state government is more transparent; it certainly isn't in my state, where they stopped printing the record of legislative debates and votes years ago, and still put none of that online. The number of people who can name their state representative is even smaller than the pathetically small number of people who can name their federal representative.

[McKinneyTexas]

Yeah, it makes a lot more sense to privatize parts of SS than it does to let 50 states bear the administrative burden, particularly given the mobility of the US population. But even discussing the merits of devolving SS to the states is pretty esoteric, given that the chances of that ever being even remotely on the radar screen are probably less than zero.

[Nate]

Privatizing even a part of Social Security is just as bad an idea now as when George W. Bush pushed for it. Not only because then it would stop being a guaranteed benefit program, which would undo the moral reasons I mentioned above, but for practical purposes too.

First, then Social Security would cease to be a guaranteed benefit program, which would leave the retirements of seniors up to the whims of the market a lot more. Second, it would be less efficient because it would raise administrative costs by a lot, and Social Security's administrative costs are extremely low right now. Third, it would pump even more money into our already out-sized financial sector. Given the genius of the financial sector we've seen on display, do we really want to put more money in for brokers to skim a few percent off, and traders to "innovate" new investments they can profit off of, and put everybody's retirement programs under the control of a casino that's out to enrich itself? Do we want to enlarge the size of the financial sector even more, and further distort our economy? I say no.

If we put it in "safe" investments, like market index stocks, or Treasuries, or something like that, which is basically linked to the performance of the entire economy, how is that fundamentally different than what we have now, where Social Security is paid out of the larger economy anyway?

Seriously, what's the point of "privatizing" Social Security, other than Government Bad feelings or ideology, or the desire to get the Social Security money into the Stock Market so Wall Street can profit off it?