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Sunday, August 11, 2013

A writer who spoke seductive justifications to power, and the policy legacy he left us

by John MacBeath Watkins

Jamie and I have been writing posts about great non-fiction books now and then, but one category we have missed: Influential books that have had a malign influence. My nominee for today is The Way the World Works, by Jude Wanninski, although its contents were quite influential before they were gathered together in a book.

I love charts. I'm especially fond of this one, and Paul Waldman's post that goes with it, which I recommend you read.:


Waldman's point is that Paul Ryan, who claims we have a trillion-dollar deficit, is incorrect. He's probably been saying that since we did have a trillion-dollar deficit, at the end of George Bush the Unready's term.

But there's a deeper pattern here. There was an uptick in the deficit in the 1980s, a quite significant and rapid reduction in the deficit during the Clinton Administration, an even more rapid increase in the deficit during the administration of George W. Bush and Dick "deficits don't matter" Cheney, and a quite remarkable reduction in the deficit under Barack Obama.

This clearly indicates that those quickest to decry deficits don't actually mind them. George Bush I failed to get re-elected, in spite of pushing the deficit down, because his supporters sat on their hands at election time in great numbers. Why? Well, instead of lowering taxes, he raised them. And when Bill Clinton was elected, the Gingrich congress created a budget crisis to make him lower the deficit, even voting for higher taxes. Why? Because, having drunk the voodoo economics Cool-aide, they thought raising taxes would hurt the economy and prevent Clinton from being re-elected.

Now they have abandoned that strategy, insisting instead that Obama make unpopular cuts to accommodate their preferred spending level. They have shown they cannot make those cuts themselves, because they know just how unpopular they would be if they did.

The problem is, the policy positions the GOP is pushing are often not core beliefs, but strategic moves to make the Democrats less popular. They had harsh things to say about John Maynard Keynes during the stimulus debate in 2009, but in 2008 they passed the Bush stimulus with nary a whimper. They did not oppose the Obama stimulus because they didn't believe it would work, they opposed it because they feared it would.

In the same framework of partisan maneuvering disguised as policy beliefs, the large deficits they ran up were not in any way accidental. Mitt Romney may have stuck his foot in it when he said the Democrats were buying off half the population with goodies paid for by tax, but he was voicing a core belief of Republican leaders, that buying off the voters with tax dollars works.

That's why George W. Bush added a prescription drug benefit to Medicare. He thought it would make him popular with the older voters who are critical to the prospects of Republican candidates.

This goes back at least to 1976, when then Wall Street Journal pundit Jude Wanninski wrote a famous column about the "two Santas" theory of getting Republicans elected.

His theory was that the Democrats were getting elected by promising to spend tax dollars on things people wanted, and Republicans were playing Scrooge by trying to prevent them from doing so. He proposed that Republicans should play Santa as well, promising tax cuts. This dovetailed nicely with the "starve the beast" strategy, which said that if you wanted to make government smaller, you had to cut the taxes that fed it, then spending would have to fall.

The problem with Wanninski's theory was that the national debt was falling as a percent of GDP during the post-war period when Republicans claimed Democrats had been using this strategy. Rather than playing Santa, they were spending money on things people wanted, and paying for them with taxes people paid. Republicans had been part of this pay-as-you-go policy, but Wanninski worked to take them away from it.

Wanninski was also a big believer in supply-side economics, which claimed that if you lowered taxes, economic activity would increase and tax revenues would not go down. He labeled this the Laffer curve, after his friend, Arthur Laffer, who did not invent it. The concept goes back at least as far as David Hume, who made the argument in 1756, and is sometimes attributed to  Ali ibn Abi Talib, who was Calif of the Islamic empire from 656 to 661. Laffer's innovation was to claim that it would work at the levels of taxation present in the 1970s.

It didn't work when tried in the 1980s, and subsequent research shows the maximum revenue point for taxation is around 70%, which had been the top marginal rate since the Kennedy Administration, but we still hear this justification for lowering taxes occasionally.

Some writers make their mark by speaking truth to power. Wanninski made his mark by speaking seductive justifications to power. And the widespread influence in conservative circles of those justifications is still driving the debate today. The see-saw effect of the rising and lowering deficits is a result of this cynical view of the world. Republicans are trying to play Santa, and make Democrats play Scrooge, because Wanninski's arguments were so much more seductive than the hard work of governing well.

We need two parties capable of governing well in order to give voters a real choice, which is essential in a democracy. Wanninski's legacy is a Republican Party addicted to easy answers and a cynical view of government, a party that tried to use government to reward the nation for voting Republican and punish it for voting for Democrats, willing to crash the economy for partisan gain.


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