One way out

Via Brad DeLong, Martin Wolf of the Financial Times spells out what I believe is the truth about America’s fiscal future:

My reading of contemporary Republican thinking is that there is no chance of any attempt to arrest adverse long-term fiscal trends should they return to power. Moreover, since the Republicans have no interest in doing anything sensible, the Democrats will gain nothing from trying to do much either. That is the lesson Democrats have to draw from the Clinton era’s successful frugality, which merely gave George W. Bush the opportunity to make massive (irresponsible and unsustainable) tax cuts. In practice, then, nothing will be done.

[…..]

Supply-side economics transformed Republicans from a minority party into a majority party. It allowed them to promise lower taxes, lower deficits and, in effect, unchanged spending. Why should people not like this combination? Who does not like a free lunch?

[….]

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

I’m not sure that I agree that supply-side economics was the dominant factor in transforming Republicans from a minority party into a majority party; I don’t think the Republicans have been a majority party for many of the past 30 years and, to the extent that they have been, regional realignment based on opposition to civil rights has been the most important factor, IMHO.

That said, the supply side myth is, truly, economic crack cocaine that has the potential to bring about something as cataclysmic as a US government default — something many conservatives say they would welcome. The only thing that is likely to stop it is a demographic trend that may marginalize the Republican party.






48 replies
  1. 1
    jeffreyw says:

    Longest game of chicken I’ve ever seen. Who will flinch first?

  2. 2
    Wayne in LV says:

    They are the majority party in essence because they suck all of the oxygen out of the room. They dominate the media. The Tea Party is the tail that wags the dog. And they are never wrong. 75% of Americans are not Tea Party/Republican. How can they be more marginalized?

    Ever talk to a driver who’s blind drunk?

  3. 3
    MikeJ says:

    Demographic changes by themselves shouldn’t have any effect on the popularity of the Republican party, unless they do something suicidally stupid act run around acting like racists all the time.

    What?

    Oh. Never mind.

  4. 4
    wilfred says:

    Whistling past the cemetery:

    The Middle Class in America Is Radically Shrinking. Here Are the Stats to Prove it

    Disappearing more like it; and with it the political economy that first brought it into being. Interesting stats:

    A staggering 43 percent of Americans have less than $10,000 saved up for retirement.

    http://finance.yahoo.com/tech-.....l?tickers=^DJI,^GSPC,SPY,MCD,WMT,XRT,DIA

  5. 5
    Comrade Jake says:

    How are we not epically screwed when one side can effectively claim that up is down, and it takes 60 votes in the Senate to take a crap? All the incentives are aligned against making tough decisions until it’s way too late. End of empire, indeed.

  6. 6
    Davis X. Machina says:

    Wolf and others are right, but being right isn’t enough. They’re assuming a shared belief in all players that credibility is a per-se good.

    That won’t work in a theological debate.

    The greater the faith, the greater the merit. And the greatest faith, hence the greatest merit, comes from believing the incredible. Which is what movement conservatism demands from its followers.

    Ordinarily believing in the incredible, and proclaiming it in the streets and thoroughfares gets you pointed to, and laughed at. Because the ordinary crank preacher says ‘The end is near. You have to wear sackcloth and ashes, and renounce your earthly goods. ‘

    This is a recipe for marketing failure.

    It sells waaaay better if you say ‘The end is near. Party on, dudes.’

    Thus supply-side economics.

  7. 7
    jrg says:

    a US government default—something many conservatives say they would welcome.

    Whatever. When grandma McChurchlady stops getting her monthly Social Security check, she’ll cease giving a fuck about teh gheys, and the top marginal tax rate will hit 90%.

    The stupid in this country burns hotter than 1,000 suns. You cannot extinguish it with reason. People need to get burned – there is simply no other way they can learn.

  8. 8
    Stillwater says:

    the supply side myth is, truly, economic crack cocaine that has the potential to bring about something as cataclysmic as a US government default

    Well, the US won’t technically default, since we have a printing press. But also, too, if the Teabaggers who become our new overlords in Congress get too frisky, envelopes filled with an unknown white powder will begin appearing on their desks, and in the mail-boxes of their loved ones.

  9. 9
    PeakVT says:

    The destruction of fiscal credibility could be the outcome of the policies of the party that considers itself the most patriotic.

    Wolf needs to learn that everything the Republican party says it stands for is a cover for what it really stands for – keeping the rich rich.

    The only thing that is likely to stop it is a demographic trend that may marginalize the Republican party.

    Mebbe. There are far too many Democrats who are willing to join in any tax cut orgy. And, in general, America seems unwilling to face the truth about any hard issue, be it the deceptions that led to the Iraq War or global warming. I think the post-Cold War mentality (we won, therefor everything we do is right) won’t break down until America faces a real, painful crisis that affects even people inside the media bubbles in DC and NYC. As Atrios is fond of saying, I’d be happy to be wrong.

  10. 10
    Corner Stone says:

    Speaking of tax cuts. Watching the roundtable on This Week today talking about tax cuts was hilarious.
    Five multi-multi-millionaires debating the expiration of the Bush Tax Cuts and how long they should be extended.

  11. 11
    Derelict says:

    Republicans love America more than anybody else anywhere ever!

    They just hate the government of America.

    And more than half the people who live there.

    And the True Christians among them pray daily that the vast majority of their countrymen suffer unspeakable suffering at the hands of a righteous God.

  12. 12

    the supply side myth is, truly, economic crack cocaine

    Or economic meth, which seems to have overtaken crack cocaine as the demon drug du jour.

  13. 13
    Bruce (formerly Steve S.) says:

    I don’t think the Republicans have been a majority party for many of the past 30 years

    You’re right, they haven’t, though it is an enduring myth. The federal government has been, roughly speaking, evenly split between the two main parties since 1968 if you regard the legislative and executive branches as coequals. Even when the Republicans have held houses of Congress their majorities have not tended to be huge. Whatever has gone wrong the past 30 years has been a bipartisan effort.

  14. 14
    ThatLeftTurnInABQ says:

    @PeakVT:

    I think the post-Cold War mentality (we won, therefor everything we do is right) won’t break down until America faces a real, painful crisis that affects even people inside the media bubbles in DC and NYC.

    Imperial hubris is the crystal meth of nationalism. There is only one way out of that trip once you start it, and it involves getting one’s ass kicked by a reality that is bigger and nastier than you are, long enough and hard enough that the lesson sticks for good. And then you end up like Sweden. I just hope we can manage to make it through that stage without killing huge numbers of people. Perhaps if we are lucky we can find somebody else to take the American Empire off of our hands for cash money, like the Brits did to us between 1917 and 1956.

    If it sweetens the deal, I’d be willing to throw Niall Ferguson into the bargain for free.

  15. 15
    Kryptik says:

    @arguingwithsignposts:

    I honestly disagree.

    Supply-side economics is cocaine period. It’s mostly accessible and benefits the rich, is much more leniently punished compared to other failed economic practices, and is never subject to boogeyman-ing compared to the other failed practices despite being just as ugly and detrimental.

  16. 16
    burnspbesq says:

    There’s a man down there.

    Might be your man, I don’t know.

  17. 17
    vtr says:

    @Derelict: When American conservatives talk about “our precious American Freedoms,” they’re talking about their money. Our “vital national security interests” means ‘their money.”

  18. 18

    @Kryptik:

    Supply-side economics is cocaine period. It’s mostly accessible and benefits the rich, is much more leniently punished compared to other failed economic practices, and is never subject to boogeyman-ing compared to the other failed practices despite being just as ugly and detrimental.

    I see your point. However, Supply Side also disproportionately affects the poor and middle classes, who keep believing in it despite its ill effects, hence the meth/crack analogy.

  19. 19
    burnspbesq says:

    It didn’t need to be like that, but our grandkids are going to live in Hobbes’ state of nature.

  20. 20
    Cacti says:

    But, if the US has its credit rating destroyed by Republican machinations, how will they pay for their imperial ambitions in the Middle East and the war with Iran that they want so desperately?

    Wait, I forgot. Wars pay for themselves.

  21. 21
    Cacti says:

    @arguingwithsignposts:

    However, Supply Side also disproportionately affects the poor and middle classes, who keep believing in it despite its ill effects

    They keep being told that if they just work harder, and “pull themselves up by the bootstraps” they would be rich too. If you’re not rich, you just didn’t try hard enough.

    You too can be a winner in a game that’s rigged against 95% of the population.

  22. 22
    Corner Stone says:

    Jesus on his wheat thins:
    Ex-CIA chief: Strike on Iran seems more likely now

    Michael Hayden, a CIA chief under President George W. Bush, says that during his tenure a strike was “way down the list” of options. But he tells CNN’s “State of the Union” that such action now “seems inexorable.”

    I generally poo-poo this kind of scare mongering, since we’ve seen it for quite some time now.
    But the drum beat is really ratcheting up.

  23. 23
    Corner Stone says:

    Greeaatt. Thank you Adm Mullen:
    Top U.S. officer warns Afghan war will get worse

    More NATO troops will die in Afghanistan as violence mounts over the summer, but Washington’s goal of turning the tide against the insurgency by year’s end is within reach, the top U.S. military officer said on Sunday.

    I’m glad we can turn the tide ~ if you’ll just give us six more months.

  24. 24
    Corner Stone says:

    Oh, hey! Maybe we killed a few of those pesky ninjas this time.
    US drones kill 12 militants in northwest Pakistan

    The U.S. has launched more than 100 missile strikes in Pakistan’s semiautonomous tribal area along the Afghan border over the past several years. Most of them have targeted militants in North and South Waziristan, important sanctuaries for Afghan and Pakistani Taliban fighters.

  25. 25
    Jasper says:

    The proper name for “Supply Side” economics coupled with massive spending is the “Two Santa Clauses” theory advanced by Jude Wanniski in the 1970s.

    Santa 1 – low taxes.
    Santa 2 – big spending

    This isn’t a joke. And by claiming that tax cuts pay for themselves, they could fool the public into not demanding spending be paid for – it was, with magic fairy dust and LOWER marginal rates on the rich!! And of course, when democrats address the problem sanely, their only option is to remove a Santa – tax increases or spending cuts – which the GOP can demonize, see “death panels” for example and of course the routine complaints about tax increases.

    We’re doing the GOP hacks a favor by describing what they do as a legitimate economic theory, instead of labeling it accurately – a theory grounded in a child’s myth.

  26. 26
    BR says:

    OT: Booman has a new post of (old) video of Netanyahu admitting to sabotaging the Oslo accords and lying to Clinton.

  27. 27
    Ecks says:

    People need to get burned – there is simply no other way they can learn.

    And that lesson lasts approximately one generation, maybe 2. Give it 10-50 years (depending how smart they are) and they’re right back at the coke.

  28. 28
    Bill Arnold says:

    A lot of the damage was caused by making “Borrow and Spend” respectable in Republican circles, at least if it was Republican borrowing and spending. The oft-cited Dick Cheney quote “You know, Paul, Reagan proved deficits don’t matter,..” is emblematic. (The Paul was Paul O’Neill.)
    It used to be that Republicans stood for fiscal responsibility, and they were a counterweight to the Democrats. This still has some truth at the local level but hasn’t been true at the national level for decades.

  29. 29
    ThatLeftTurnInABQ says:

    @Ecks:
    I’m guessing it lasts more like 3-4 generations, based on these two data points:

    Napoleonic Wars – World War I: about 100 years between massive continental scale great power wars.

    Great Depression – Great Recession: about 70 years between massive global economic meltdowns.

    Call it the Grandpa Simpson principle. People get really stupid when they don’t have anything better to listen to in the way of stories from the old timers than about how we all used to wear onions on our belts.

  30. 30
    Davis X. Machina says:

    It didn’t need to be like that, but our grandkids are going to live in Hobbes’ state of nature.

    Or Calvin’s Geneva theocracy.

    Damn you, Bill Watterson!

  31. 31
    CalD says:

    My take is that Republican fiscal policy is basically about greed and selfishness, rule of the strongest, every man for himself. It has its roots the conservative’s affinity for models of social organization that a someone raised in a chimpanzee tribe would have no trouble recognizing. Unfortunately, complex economies require more complex frameworks a few more rules than chimpanzee tribes to function properly, but try explaining that to a chimpanzee. They’ll probably just throw feces at you.

    So basically there’s a cycle where you get enough structure in place for an economy to run fairly smoothly — typically in response to an economic collapse of some kind — people are working, they get a little extra change in their pockets and they start getting greedy. Putting something back in the kitty so that everyone benefits including you starts to sound like an imposition, nay, a giveaway to people who contribute less and are just sponging off good, hard-working people like yourself who have been no more than justly rewarded for their labors. Tearing down those structures that keep things from descending into kleptocracy (more or less) and throwing out the rules that say you have to contribute back to society, starts sounding better and better.

    So mob mentality prevails and people elect a bunch of Republicans, who gleefully set about wrecking regulatory structures and running up debt. Chaos and financial ruin ensue until one day, people look up and realize that perhaps there is a place for social contracts in economic policy after all. So they head back to the polls and elect a bunch of Democrats, who set to work and start patching things up the best they can until the economy starts to function again and… Lather, rinse, repeat.

  32. 32
    Jennifer says:

    @Davis X. Machina:
    Dude, I so have a new post up over at my joint that underlines what you said. It’s an ideology built on fantasy.

  33. 33
    chrome agnomen says:

    @jrg:

    agreed. i have long said that things are just not so bad in this country that any significant portion of the plebs feels compelled to do anything about it. the change will come, but not until things get a lot worse. i only hope i live to see it. (truman baby)
    there are many more straw men to be burned until the real villains stand naked for the people to see.

  34. 34
    FlipYrWhig says:

    @Jasper:

    And by claiming that tax cuts pay for themselves, they could fool the public into not demanding spending be paid for

    There’s a third term too, I’d say. They believe that tax cuts pay for themselves; they believe in spending money on things like the military and prisons; but they actually _do_ have an unexpressed solution to how to balance less money coming in with more money going out, and it’s that the undeserving poor get too many free goodies and should get cut off. In other words, tax cuts _would_ pay for themselves if not for all the lazy bastards out there.

    Conservatives think their taxes are too high because there are leeches and moochers who aren’t pay their fair share, and if they shaped up, the whole enterprise could continue: low taxes, services for the deserving, no services for the undeserving, and tough, strong soldiers and cops. That’s the Tea Party ethos and its sometimes-spoken racial dimension: they can claim to hate that undeserving people get too much help, and it’s just a coincidence that they imagine those undeserving people to have black and Mexican faces.

  35. 35
    Honus says:

    @CalD:
    or a simler explanation that my eighth grade history teacher told us back in 1969: every twenty years or so the working class gets prosperous enough to vote republican.

  36. 36
    Svensker says:

    OT: Booman has a new post of (old) video of Netanyahu admitting to sabotaging the Oslo accords and lying to Clinton.

    No one cares. That came out a week or so ago and there wasn’t even a yawn — it apparently never happened and I’d guess you and Booman are antisemitic for mentioning it.

  37. 37
    b-psycho says:

    Those radical conservatives (a small minority, I hope) who want to destroy the credit of the US federal government may succeed. If so, that would be the end of the US era of global dominance.

    In other words, a long enough stretch of right-wing fiscal policy would result in extinguishing a major grievance of the radical Left…

    The irony is making my head hurt.

  38. 38
    Alex S. says:

    It’s a really good package: Supply-side economics works quicker than Keynesian economics. So you keep people at the edge of bankruptcy and they’ll swallow this poison pill. It also has got the additional effect of keeping inflation low, which solidifes the class structure of society and also looks good in the short run (people forget that inflation doesn’t necessarily mean that things get more expensive – they only get more expensive if wages don’t rise as well). Supply-side economics is easy to understand for the average person. It just …sounds… good. But in reality, it doesn’t work. Tax cuts don’t pay for themselves. However, this is intended as well. The new debt only serves to justify cuts to the social net, which, in turn solidifies the class structure again…. And once people of the middle-class give up trying to climb the ladder, they’ll find comfort in other areas – religion, values, nationalism. Nationalism creates a desire for armed conflicts, a giant defense budget and even more debt. Religion tames people’s minds and makes them accept authority. Values create a conservative mindset that is occupied with useless proxy wars about abortion and sexuality, racial sentiments and stupid cultural stuff like grizzly moms, arugula vs bacon, and so on and on and on.

    The conservative machine gets better and better at it. They were unfortunate to have someone like G.W.Bush as their spokesman (although a person like him might be the inevitable, but also perfect figurehead for this kind of ideology). They called the organization to drown campaigns in corporate millions “Citizens United”. They’ve got a theory, no matter how silly, for every possible political development. They’ve got the bigger loudspeakers, the better organization, more money and the more active supporters.

  39. 39
    Ed Drone says:

    @jrg:

    The stupid in this country burns hotter than 1,000 suns. You cannot extinguish it with reason. People need to get burned – there is simply no other way they can learn.

    The problem is that the first-burned are going to be the most combustible and least-able to recover. The granny whose Social Security is in danger will be quite happy to be told that the ni99ers did us in, and don’t deserve what they’re getting ‘free’ from the ‘rest of us,’ and that, if only we punish ‘them,’ the rest of us, including the captains of industry, get off Scott-free (the irony of saying ‘Scott-free’ when talking of race is noted).

    Then the poor of all races will be thrown to the dogs, (I wonder if ‘under the bus’ and the connection with Greyhound — ‘the dog — is another irony or just a coincidence). Eventually, when enough people are beggared, ruined, and ground down, there will be a movement resembling the New Deal, but the corporations will fight even harder than they did last time, so it may be even more of an eruption, something more nearly a revolution, than then. And, recalling the labor unrest of the 10s, 20s, & 30s, that may be quite violent.

    If enough people put a stop to it now, it may not reach that level, but I doubt it can be stopped.

    Then again, I’m an optimist.

    Ed

  40. 40
    CalD says:

    @Honus:

    [E]very twenty years or so the working class gets prosperous enough to vote republican.

    A concise encapsulation, to which I would only add:

    …with invariably disastrous results.

  41. 41
    LGRooney says:

    “I don’t think the Republicans have been a majority party for many of the past 30 years”

    But they have in terms of their economic way of thinking, i.e., many Democrats and independents think Keynesian economics are ruinous, Reagan & Greenspan set us free, deficits don’t matter (until Democrats control the budget), etc.

  42. 42
    Batocchio says:

    It’s not either/or. The Southern Strategy helped them gain power, and in the 80s, they inflicted Reaganomics, which made the U.S. into more of plutocracy and further consolidated their power. Elections are secondary, especially when your side can inflict damage that doesn’t get reversed when the other side gets elected (Reagan’s massive tax cuts for the wealthy, dismantling effective government agencies, etc, torturing people and not prosecuting it). The GOP is now reckless rich people and a crazy base. The former don’t care if they tear the country apart (they got theirs), and the latter are eager to do so.

  43. 43
    Texas Dem says:

    The only thing that is likely to stop it is a demographic trend that may marginalize the Republican party.

    True, but before we reach that point (and it will probably take another decade at least), the GOP will likely have destroyed the country’s finances. And don’t underestimate the possibility of political violence or even civil war. There are some elements of the right that will not surrender the power they have over us without a fight.

  44. 44
    slag says:

    I agree with the overall point, but, like you, DougJ, I find this bit irritatingly simplistic:

    Supply-side economics transformed Republicans from a minority party into a majority party. It allowed them to promise lower taxes, lower deficits and, in effect, unchanged spending. Why should people not like this combination? Who does not like a free lunch?

    Isn’t it past time to throw the phrase “free lunch” under the bus?

  45. 45
    John Thullen says:

    “The only thing that is likely to stop them is a demographic trend that may marginalize the Republican Party.”

    Texas Dem alludes to this, allusion being a fine liberal tradition. It comes with the complicated nature of our political presentation to the American people, which is sorely lacking in the face of the Republican Party’s plain talk about secession, violence and watering the tree of liberty with John Cole’s blood.

    Let me get this right: demographics is the only arrow in the quiver, Doug J? This from a guy who last week ripped a big deep bloody one in Andrew Breitbart’s racist motherfucking anti-American ass last week.

    The fascist Republican Party is the most dangerous, murderous organization on the face of the earth. Osama Bin Laden studies them for tactical advantage.

    What do you think, you’re running an intellectual salon here to counter filth who are going to kill you?

    They want the insolvency of the U.S. Government.

    Think about that. Not as a debating point on the effing internet, but as a mortal threat to this country and your life.

    I don’t want the enemy of my country marginalized. I want them dead.

    They’d kill us if they could.

  46. 46

    So, you’ve decided to define ‘majority party’ as ‘a party that is mostly in the minority’? That’s a neat trick!

    Over the past 30 years, the Republicans have controlled the Presidency for 20 of them. Over the past 30 years, the GOP controlled the Congress 12 years plus several years of divided control. From 1980-2006, the GOP dominated every facet of our political system. It has started to come back towards the Democrats again since then, but after the mess the Democrats and Obama have made of every aspect of our nation over the last 4 years, I imagine it’ll swing GOP again.

  47. 47
    mclaren says:

    It’s not just the Republican supply-siders who are insane.

    Democrats like Obama are also insane when they declare a spending freeze except for the U.S. military-industrial complex, which gets an 8% spending boost at a time when America faces no credible threats anywhere in the world and has no meangingul enemies anywhere on the planet.

    Spending 200 billion a year to send the U.S. army into Afghanistan to fight 100 Al Qaeda is insane.

    Spending 700 billion over next 5 years on a massive Navy shipbuilding program when supersonic torpedoes like the shkval and stealthed radar-invisible pop-up cruise missiles make all of America’s carrier groups giant floating targets that will sink straight to the bottom in the first 5 minutes of any naval engagement is insane.

    Spending 323 billion so far (and the cost continues to climb, now 158 million dollars per plane, twice the estimate of just 2 years ago, but wait another 2 years and the cost will probably double again) on the air force’s useless and wildly overpriced F-35 joint strike fighter in a world where UAVs that can vastly outclimb and out-accelerate any manned fighter by using G forces that would turn a human pilot to pulp is insane.

    The entire deficit of the United States could be zeroed out tomorrow if we cut our futile pointless bloated 1.3 trillion dollar per year military budget by 80%.

    Whatever deficit America runs today is optional. We could get rid of it tomorrow by cutting military spending, and we wouldn’t even hurt our defense posture, because most of our defense spending is wasted on weapons that don’t even work.

  48. 48
    mclaren says:

    @A Conservative Teacher:

    …after the mess the Democrats and Obama have made of every aspect of our nation over the last 4 years, I imagine it’ll swing GOP again.

    Yes, after that huge terrorist attack that occurred on Obama’s watch, the largest terrorist attack in American history, we need change.

    Oh, wait…the biggest terrorist attack in American history occurred under a Republican president.

    But surely after the world economy collapsed and imploded in an orgy of fraud during Obama’s presidency, we must have change.

    Oh, wait…the world economy imploded during Republican rule.

    But after all the massive corruption in government, with all those White House officials sent to prison for committing all those crimes, we’ve got to have change.

    Oh, wait…all the massive corruption in government and all the White House officials sent to prison occurred under Nixon and Reagan and Bush, not the Democratic presidents.

    In fact, there is not one single measure by which America improved under Republican rule.

    Republicans destroyed defense readiness (every brigade in the U.S. army was combat-ready under Clinton, under Bush, none were because of the force drawdowns for Iraq and Afghanistan). Republicans destroyed the fiscal integrity of the U.S. treasury. Republicans made Americans poorer, sicker, more unemployed. Republicans have wrecked U.S. science research, Republicans have destroyed the regulatory agencies like the SEC necessary for the correct functioning of the American economy.

    Every single measure of prosperity has declined under Republican presidents and skyrocketed under Democratic presidents.

    Time for a change indeed. Time to try every self-identified conservative for treason and deport ’em all to Somalia, where their dreams of a libertarian paradise with no regulations and no taxes can finally be realized.

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