By Dave Anderson:
Brad DeLong in 2002 wrote about the vacuity behind the Norquistian rhetoric of drowing the government in a bathtub co-mingling with the Cheney faction belief that deficits did not matter:
November 18, 2002Wile E. Coyote Explains Bush Administration Fiscal PolicyWile E. Coyote Explains Bush Administion Fiscal Policy
One of the weirder things one hears from Republicans these days is that our current medium-sized (and our larger prospective future) federal deficits are not the accidental results of lack of policy-making competence on the part of the Bush team but part of a clever strategy to advance the long-run Republican goal of shrinking federal spending as a share of the whole economy. How is this strategy supposed to work?
- Republicans cut taxes to create a large and unsustainable deficit.
- The deficit comes to be perceived as a serious problem.
- Democrats who believe that sound finance leads to faster economic growth clean up the deficit.
- In the course of cleaning up the deficit, spending falls as a share of GDP--and so Republican aims are achieved.
It is weird to hear this argument because of four things:
- It requires that Republicans accuse their own standard bearers of a considerable degree of public mendacity.
- It is unpatriotic.
- It is self-denying.
- It appears to be false.
It also has the advantage of counting on Democrats being perpetual suckers in a repeated iteration game. This Republican strategy and the associated deficit cries crippled the Clinton administration's social and domestic policy goals including healthcare in 1993/1994, and the same bear hug of "we can't afford anything besides more wars" is slowly crushing the Obama administration's domestic policy. This game has an intention of creating blog-posts like the following from Bernard Finel:
I understand the reality of this. Republicans run up massive deficits in order to constrain Democratic administrations. It is fundamentally undemocratic behavior. And sooner or later, a Democratic president was going to come along and say, �screw it, I am not going to allow my agenda to be dictated by the dead hand of past Republican idiocy.� But, the fact is that this is a disaster looming:
White House Adds $2 Trillion to Deficit Forecasts � washingtonpost.com
The nation would be forced to borrow more than $9 trillion over the next decade under President Obama�s policies, the White House acknowledged late Friday, bringing their long-term budget forecast in line with independent estimates.
We�re going to add $9 trillion to our national debt� IF WE�RE LUCKY. This assumes no double-dip recession. It assumes no major terrorist attacks. It assumes no other wars. It assumes no more financial meltdowns. It assumes no disruption in oil supply. $9 trillion in new debt is the BEST CASE.
And I know, this isn�t Obama�s fault. It really isn�t. It is a consequence of the slash and burn lunacy of Rove-style politics combined with the profound economic ignorance of the Republican party.
The best game-theoretic way of playing multi-iteration games is to engage in a strategy of tit for tat with a non-cooperative opponent. Right now the Republicans have engaged in a generation long strategy of being irresponsible douchebags of running up massive debts, decrying the possibility of actually paying down previous debts in order to get some breathing room for either the foreseen (Baby Boomers retiring) or the unforeseen (9/11) and passing large tax cuts that pay off their contributor class. They build facts on the ground that are favorable to their ideology and core party members, and then they count on the Democrats being responsible.
John Kerry supported the Iraq War (stupidly) but was attempting to be responsible by voting for a supplemental bill that actually did the normal thing in American history --- raise taexes for the war effort. He was mocked and derided viciously and successfully for being a flip-flopper because he did not want to put the war on a credit card. The Medicare Part D drug benefit is a massive give-away to the drug companies as the bill did not allow one of the largest buyer of drugs in the world (no, not Wal-Mart), the US government, use its purchasing power to get good rates. It did not even include a weaker strategy of dictating that the US government would pay the lowest price for a drug that is agreed upon by any other purchasing entity. That would have saved a massive amount of money as well as slowly remove the US drug subsidy to the rest of the OECD. Now, in the healthcare debate, mild tweaks to a horrendously designed policy are politically tough.
The most effective way to break bad behavior in a multi-iteration game is to not be a sucker. It is to play tit for tat. If we want a political discourse that is rational over the long run, horrendously perverse incentives have to be counter-productive. Democrats should be strongly tempted to take the dare of being irresponsible to break the Norquistian dream that we can have a government of medium to high services and no taxes. Moderate inflation, which would be the first noticable impact of moving the US debt to GDP ratio to levels that are also sustainable by modern industrial economies, benefit retrenching consumers much more than it does bondholders and GOP country-club funders.
Right now, the American political system is set up for the Democrats to be multi-generational suckers if Democrats continue to be responsible instead of seeking their policy goals that have significant public support. Time to think about playing under a different rule and assumption set.
This thought has been bouncing around my head since W was first selected, actually.
ReplyDeleteGreat reading!
The problem is that Norquist does not want a "a government of medium to high services and no taxes." He wants a government of no services. He has openly spoken of rolling back Roosevelt's policies... Teddy Roosevelt's.
ReplyDeleteThe means to accomplish this massively unpopular goal is to create a fiscal crisis of such massive proportions that it can only be met by dismantling much of the federal government. The crisis is designed not just to be a fiscal crisis narrowly, but a crisis of legitimacy provoked by the perception that the federal government cannot manage its own affairs.
The problem with the tit-for-tat logic is that it assumes that the opponent does not want to pays the costs of DD -- double defection -- and hence will learn that it is better to cooperate than to defect. But that is wrong here. The Republicans precisely want the DD outcome. They want the Democrats to defect and for them to defect and for the consequence to be an ever growing imbalance between revenue and expenses because that is how they get to the crisis they want to impose an unpopular rollback of the federal government.
Just clarify... the problem is that DeLong's argument is wrong. The goal is not an incremental dynamic of prompting Democratic cutbacks. That's just gravy. The bigger goal is to actually create a crisis large enough to kill social security, medicare, and even wholly delegitimize regulatory agencies.
ReplyDeleteThom Hartmann covered this topic very well in Two Santa Clauses or How The Republican Party Has Conned America for Thirty Years which I discussed here.
ReplyDeleteModerate inflation, which would be the first noticable impact of moving the US debt to GDP ratio to levels that are also sustainable by modern industrial economies, benefit retrenching consumers much more than it does bondholders and GOP country-club funders.
ReplyDeleteReminds me of a statement in the mid 1970s of the then German Chancelor Helmut Schmidt, who said that he preferred 5% inflation over 5% unemployment.
Those were the days, when full employment meant an unemployment rate of less than 2% and there was real growth in wages. But of course, the propertied class hated it and found useful tools in St Ronnie and Lady M. The rest is history.
And we'll get high inflation in the near to mid-term future anyway. Will make it easier to pay down the large public debt that had to be accumulated in the process of averting another Great Depression.
>>And we'll get high inflation in the near to mid-term future anyway. Will make it easier to pay down the large public debt that had to be accumulated in the process of averting another Great Depression.<<
ReplyDeleteOnly if we're running surpluses. Otherwise, as we roll over the debt, we'll pay higher interest on the new bonds wiping out virtually all of the advantages of devaluing the old debt.