I'm behind today. While I try to catch up, first, from an interview with Bruce Bartlett:
Six questions for Bruce Bartlett, The Economist: ... DiA: More generally, which party do you find more credible when discussing America's fiscal challenges?
Mr Bartlett: The Republicans don’t have any credibility whatsoever. They squandered whatever they had when they enacted a massive UNFUNDED expansion of Medicare in 2003. Yet they had the nerve to complain about Obama’s health plan, WHICH WAS FULLY PAID FOR according to the Congressional Budget Office. The word “chutzpah” is insufficient to describe how utterly indefensible the Republican position is, intellectually.
Furthermore, Republicans have a completely indefensible position on taxes. In their view, deficits cannot arise from tax cuts. No matter how much taxes are cut, no matter how low revenues go as a share of GDP, tax cuts are never a cause of deficits; they result ONLY AND EXCLUSIVELY from spending—and never from spending put in place by Republicans, such as Medicare Part D, TARP, two unfunded wars, bridges to nowhere, etc—but ONLY from Democratic efforts to stimulate growth, help the unemployed, provide health insurance for those without it, etc.
The monumental hypocrisy of the Republican Party is something amazing to behold. And their dimwitted accomplices in the tea-party movement are not much better. They know that Republicans, far more than Democrats, are responsible for our fiscal mess, but they won’t say so. And they adamantly refuse to put on the table any meaningful programme that would actually reduce spending. Judging by polls, most of them seem to think that all we have to do is cut foreign aid, which represents well less than 1% of the budget.
Consequently, I have far more hope that Democrats will do what has do be done. The Democratic Party is now the “adult” party in American politics, willing to do what has to be done for the good of the country. The same cannot be said of Republicans, who seem unwilling to do anything that would interfere with their ambition to retake power so that they can reward their lobbyist friends with more give-aways from the public purse.
Unfortunately, I don’t think Democrats have the guts or the stamina to put forward a meaningful deficit-reduction programme because they know—as I do—that it will require higher revenues. But facing big losses in the elections this fall I can’t blame them. That leaves us facing political gridlock between the sensible but cowardly party and the greedy, sociopathic party. Not a pleasant choice for those of us in the sensible, lets-do-what-we-have-to-do-for-the-good-of-the-country independent centre. ...
Next, as Brad DeLong notes, Martin Wolf "makes the case that America's future depends on the rapid destruction of the Republican Party and its replacement by an alternative opposition party to the Democrats":
The political genius of supply-side economics, by Martin Wolf: ...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. ...
To understand modern Republican thinking on fiscal policy, we need to go back to perhaps the most politically brilliant (albeit economically unconvincing) idea in the history of fiscal policy: “supply-side economics”. Supply-side economics liberated conservatives from any need to insist on fiscal rectitude and balanced budgets. ... 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?
How did supply-side economics bring these benefits? First, it allowed conservatives to ignore deficits. They could argue that, whatever the impact of the tax cuts in the short run, they would bring the budget back into balance, in the longer run. Second, the theory gave an economic justification – the argument from incentives - for lowering taxes on politically important supporters. Finally, if deficits did not, in fact, disappear, conservatives could fall back on the “starve the beast” theory: deficits would create a fiscal crisis that would force the government to cut spending and even destroy the hated welfare state.
In this way, the Republicans were transformed from a balanced-budget party to a tax-cutting party. This innovative stance proved highly politically effective...
The ... theory that cuts would pay for themselves has proved altogether wrong. ... Indeed, Greg Mankiw ... has responded to the view that broad-based tax cuts would pay for themselves, as follows: “I did not find such a claim credible, based on the available evidence. I never have, and I still don’t.” Indeed, he has referred to those who believe this as “charlatans and cranks”. ...
So, when Republicans assail the deficits under President Obama, are they to be taken seriously? ...[I]t is not deficits themselves that worry Republicans, but rather how they are caused: deficits caused by tax cuts are fine; but spending increases brought in by Democrats are diabolical, unless on the military. ...
What conclusions should outsiders draw about the likely future of US fiscal policy? First, if Republicans win the mid-terms in November, as seems likely, they are surely going to come up with huge tax cut proposals (probably well beyond extending the already unaffordable Bush-era tax cuts).
Second, the White House will probably veto these cuts, making itself even more politically unpopular.
Third, some additional fiscal stimulus is, in fact, what the US needs, in the short term, even though across-the-board tax cuts are an extremely inefficient way of providing it.
Fourth, the Republican proposals would not, alas, be short term, but dangerously long term, in their impact.
Finally, with one party indifferent to deficits, provided they are brought about by tax cuts, and the other party relatively fiscally responsible (well, everything is relative, after all), but opposed to spending cuts on core programs, US fiscal policy is paralyzed. ...
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.
In sum, a great deal of trouble lies ahead, for the US and the world.
Where am I wrong, if at all?