We’re Going to Tax Their Ass Off!

by Corey Robin on August 30, 2012

This past Sunday, I appeared on Up With Chris Hayes, where I spoke briefly about the rise of austerity politics in the Democratic Party (begin video at 2:13). My comments were sparked by Bruce Bartlett’s terrific piece “‘Starve the Beast’: Origins and Development of a Budgetary Metaphor” in the Summer 2007 issue of The Independent Review. Barlett is a longtime observer of the Republican Party, from without and within. He was a staffer for Ron Paul and Jack Kemp, as well as a policy adviser to Ronald Reagan and a Treasury official under George HW Bush.  Now he’s a critic of the GOP, writing sharp commentary at the New York Times and the Financial Times. He and I have argued about conservatism before. When it comes to fiscal policy, however, he’s one of the savviest analysts of the GOP out there. What follows is an extended summary/riff on Bartlett’s piece and what I said on Hayes’s show: to understand how austerity works in (and for) the Democratic Party, you have to understand how it once worked for the Republicans. Long story short: not so well.

Growing up in the 1970s, I had an almost primal association to the GOP as the party of the thrifty and the flinty. Republicans were the grownups at the table, forever cautioning the children against taking that extra piece of cake. Averse to spending money the country didn’t have, they were as leery of deficits as they were of rhetoric. Plainspoken, economizing men of austerity: that was the GOP.

There was some truth to this picture, extending back several decades. Herbert Hoover helped send the Republican Party into twenty years of exile via his ill-timed effort to balance the budget with a hefty tax increase in 1932. One of the first things Eisenhower did upon coming into office was to insist on balancing the budget. Thanks to the Korean War, tax rates were high, and many Republicans wanted Eisenhower to reduce them. He refused, saying “we cannot afford to reduce taxes, reduce income, until we have in sight a program of expenditures that shows that the factors of income and of outgo will be balanced. Now that is just to my mind sheer necessity.” Upon taking office, both Nixon and Ford pursued similar paths, and resisted similar tax-cutting calls from their party.

But by the time I was in middle school, that picture of the Republican Party had become a faded sepia print. During the 1970s, a new breed of conservative had emerged, calling into question the wisdom of balanced budgets. Men like Jude Wanniski, Milton Friedman, and Alan Greenspan took the lead in challenging the frugal dispensation on the right, claiming that Republicans had become what Newt Gingrich would later call “tax collectors for the welfare state.”

Interestingly, the most salient arguments of these new conservatives were less economic than political, focusing on the enabling dynamic of shitfaced Democrats being shepherded to safety by their designated drivers in the Republican Party, only to resume their drunken revels the following evening.

Here’s Friedman writing in Policy Review in 1978:

By concentrating on the wrong thing, the deficit, instead of the right thing, total government spending, fiscal conservatives have been the unwitting handmaidens of the big spenders. The typical historical process is that the spenders put through laws which increase government spending. A deficit emerges. The fiscal conservatives scratch their heads and say, “My God, that’s terrible; we have got to do something about that deficit.” So they cooperate with the big spenders in getting taxes imposed. As soon as the new taxes are imposed and passed, the big spenders are off again, and there is another burst in government spending and another deficit.

What was the takeaway for Friedman? In Newsweek, he wrote: “I have concluded that the only effective way to restrain government spending is by limiting government’s explicit tax revenue—just as a limited income is the only effective restraint on any individual’s or family’s spending.”

Greenspan made a similar claim before the Senate Finance Committee in 1978: “Let us remember that the basic purpose of any tax cut program in today’s environment is to reduce the momentum of expenditure growth by restraining the amount of revenue available and trust that there is a political limit to deficit spending.”

But it was probably Wanniski, more than anyone, who best understood the political ramifications of a shift away from deficits and balanced budgets. With an almost Schmittian attention to what he called “the political tension in the marketplace of ideas,” Wanniski insisted that conservatives frame the Glaubenskrieg of the two parties as a struggle “between tax reduction and spending increases.” Without that stark choice, he wrote, the Republicans would forever play the part of the disappointed, disapproving, and ultimately powerless parent: “As long as Republicans have insisted upon balanced budgets, their influence as a party has shriveled, and budgets have been unbalanced.”

Bartlett shows how this argument—the so-called “starve the beast” theory—got support from a surprisingly diverse array of voices on the right: James Buchanan’s public choice theory, the Proposition 13 movement, and the Kemp-Roth tax proposals.

Politically, it came to a head under Ronald Reagan. Unlike his Republican predecessors, Reagan did not resist the calls for tax cuts first, balanced budgets later. Having internalized the new thinking of the 1970s, he declared in a February 1981 television address:

Over the past decades we’ve talked of curtailing government spending so that we can then lower the tax burden. Sometimes we’ve even taken a run at doing this. But there were always those who told us that taxes couldn’t be cut until spending was reduced. Well, you know, we can lecture our children about extravagance until we run out of voice and breath. Or we can cure their extravagance by simply reducing their allowance.

In his 1982 State of the Union Address, Reagan doubled down on that claim:

Higher taxes would not mean lower deficits….Raising taxes won’t balance the budget. It will encourage more Government spending and less private investment…So I will not ask you to try to balance the budget on the backs of the American taxpayers.

Defenders of the Reagan-the-pragmatist thesis (with its corollary complaint that post-Gipper, the GOP has become a nest of anti-tax ideologues, fanatics, and zealots) like to point out that despite his philosophical opposition to taxes, Reagan repeatedly raised taxes throughout his administration—11 times no less.

But what’s often forgotten in these laments is that Reagan came to regret his tax increases, declaring them a colossal mistake. After he left office, he wrote in the Wall Street Journal:

Despite the “assurances,” “promises,” “pledges” and “commitments” you are given, the spending cuts have a way of being forgotten or quietly lobbied out of future budgets. But the tax increases are as certain to come as, well, death and taxes.

In 1982, Congress wanted to raise taxes. It promised it would cut federal spending by $3 for every $1 in new taxes. Being a new kid in town, I agreed to this. Unfortunately, although the new taxes went into effect, Congress never cut spending by even a penny.

James Baker came to a similar conclusion as Reagan. And taking to the Senate floor in 1993, Republican Bob Packwood—another moderate GOP declinists like to hold up against the anti-tax fundamentalists of today—spoke out against Bill Clinton’s proposed tax hikes on the same grounds.

The history of the U.S. Government is that when we increased taxes, we spent them; we did not apply it to the deficit. It does not matter that the President has stated, “Let us have a deficit reduction trust fund.” We have never followed that; we instead spent it. I predict that if we raise these new taxes, we will spend them, also. We will not cut spending. We will spend it on new programs or expansion of existing programs.

Of course, Packwood was proven wrong. By the end of the Clinton presidency, there was a surplus, and Gore ran on a platform in 2000 of using that surplus to—among other things—help pay down the debt.

Despite the record of austerity the Democrats had accumulated during the 1990s, George W. Bush refused to hold onto the surplus. Having come to maturity—to the extent one can say Bush ever matured—in the party of Reagan, Friedman, and Wanniski, he thought it imperative that any money the government had be returned to the tax payers. Neither debt nor deficits mattered. Tussling with Alan Greenspan over whether the surplus should be saved or spent, Bush insisted that “Mr. Greenspan believes that money around Washington, D.C., will be spent on a single item—debt reduction. I think it will be spent on greater government. He has got greater faith in the appropriators than I do.”

So we got tax cuts. Big time. If Lyndon Johnson’s Great Society was an extension of the New Deal, George W. Bush’s tax cut was the fulfillment of Reaganism.

Almost all of the above—the quotations, chronology, and narrative—comes from Bartlett.  But here are my three takeaways.

First, as I already suggested, we need to rid ourselves of the notion that the anti-tax fundamentalists of today’s GOP are somehow new arrivals, alien imports from the land of Grover Norquist. The anti-tax position in the GOP has been gestating on the right for decades. Whatever temporary concessions Reagan might have made, the forward thrust of the party has been in the opposite direction for nearly a half-century. The assault on George HW Bush for renouncing his no tax pledge was not a dramatic turning point; it was the consummation of a tendency decades in the making.

Second, the “starve the beast” argument sits uneasily with the basic claim of supply-side economics: that tax reductions will spur growth and generate revenues, which will pay not only for the tax cuts but also for other expenditures, ultimately leading to a balanced budget. The two arguments don’t contradict each other—indeed, both are designed to lend support for tax cuts—but they press in different directions: towards a balanced budget in the case of supply side, toward shrinking government in the case of starve the beast. The Republicans, of course, haven’t been terribly good at the former, but they haven’t been terribly bad at the latter. Today, the ratio of public-sector employees to the overall population is the lowest it’s been since 1968. That, of course, isn’t the only measure of the size of government, but it’s a pretty damn good one.

Third, though Bartlett’s piece is about the GOP, it’s hard not to see how the Democrats have come to play the same role in the contemporary political order that Republicans once played under the New Deal.

Starting with Walter Mondale’s famous pledge in 1984 to raise taxes in order to bring down the deficit—one of Barlett’s footnotes reveals this delicious and disturbing anecdote: just after announcing his tax pledge at the DNC convention to wild applause, Mondale turned to Dan Rostenkowski and said, “Look at ‘em. We’re going to tax their ass off.”—Democrats have become the party of austerity. (Doug Henwood, Josh Freeman, and David Harvey have shown that that process actually began in 1975, during the New York City Fiscal Crisis, when Wall Street Democrats successfully pushed for drastic cuts in government spending. But it was the Mondale campaign that crystallized the shift at the national level.)

[Mondale’s pledge is at 1:25, and check out a very youthful Rich Trumka at 1:38.]

Like Republicans of yore, the Democrats have repeatedly sought to reduce the debt and deficits, only to find themselves held hostage to the other side’s designs of depriving the welfare state of much needed cash.

Consider the two major presidential cycles of the last three decades: Reagan/Bush-Clinton and Bush-Obama.

During the 1980s, the Republicans cut taxes and ran up huge deficits. Then Bill Clinton came into office and announced his intention to reduce deficits. Anxious to appease Robert Rubin and the bond market, he abandoned whatever pretense of a progressive economic agenda he had set out during the campaign. He and the Democrats raised taxes and allowed government spending to decline dramatically as a percentage of GDP. By the end of his second term, Clinton had managed to generate a surplus—with the explicit purpose of not only reducing the debt but also shoring up Social Security—only to have the Bush White House squander that surplus through massive tax cuts and increased military spending.

When Barack Obama assumed office in 2008, he faced a similar conundrum as Clinton. The Bush Republicans had run up massive deficits and debt. Though the financial crisis (and his overwhelming victory) seemed to give Obama the warrant to spend—remember when we were all Keynesians again?—he was constrained by congressional Republicans and conservative elements in his own party, including the Wall Streeters who had been among his earliest supporters and happened to have a disproportionate influence in the White House. All of these forces seemed to worry more about the deficit than they did about the recession. The result, of course, was a much smaller stimulus package than many progressives had hoped for.

Then came the health care bill, which also has to be understood in the context of—indeed cannot be separated from—the politics of deficits and debt reduction. Throughout the health care negotiations, Obama took great pains to stress that his bill would not increase the deficit (CBO scores became as important to the national conversation as health care itself). Incredibly, this was an entirely Democratic, and self-imposed, constraint, which made the passage of health care reform more difficult than it might have been. As Jonathan Chait pointed out in 2010:

“Paygo” was a reform imposed by the 1990 budget agreement that required Congress to offset the cost of any new entitlement program or tax cuts with entitlement cuts or tax hikes. It was a significant factor in the decline of the deficit through the 1990s. Republicans hated it because it required them to offset the cost of tax cuts with either spending cuts or increases in other taxes, thereby making the trade-offs of tax cuts explicit. When they took control of Congress in 2001, Republicans ended the Paygo rule, which allowed them to pass a series of tax cuts along with a Medicare prescription drug benefit without any offsetting measures. The structural deficit exploded.

When Democrats recaptured Congress, they re-imposed pay-go rules, leaving an exception for extension of the Bush tax cuts for income under $250,000. That’s one reason why the Affordable Care Act had to be offset with hundreds of billions of dollars in politically-painful Medicare cuts, rather than financed solely through borrowing like the Medicare prescription drug law. Naturally, this made the Affordable Care Act much harder to pass through Congress as well as less popular — bills that hide their cost pass more quickly and with less complaint than bills that make make explicit who is going to pay for their costs.

Just as the White House and Congress were wrapping up their negotiations on the health care bill in the early months of 2010, Obama announced that the great challenge of the age was debt reduction. Though it’s often argued that Obama was pushed into that position by the Republican takeover of the House in November 2010, the fact is that he created the Bowles-Simpson Commission in February 2010, with the declared purpose of balancing the budget by 2015 and reducing the debt. The committee’s membership, chosen by Obama, included on the Democratic side deficit hawks like Max Baucus and on the Republican side…Paul Ryan.

At every step, then, of the two major initiatives of his administration—the stimulus and health care bills—Obama shouldered the load of debt and deficits. Whether that was by default or design remains the subject of much debate. But what’s not in dispute is that the debt has become the Democrats’ burden and/or vocation, which the Republicans are free to flout at will.

This became especially clear during the debt-ceiling crisis of 2011 and since. Once the Republicans began to threaten a default in the spring of 2011, Obama made one concession after another in a desperate attempt to make a deal. He offered to cut Social Security benefits, raise the Medicare eligibility age to 67, increase premiums, and more. Thankfully, GOP intransigence saved those proposals from becoming part of the deal.

The final deal, announced at the end of July 2011, included $1 trillion in cuts, divided evenly between defense and non-defense spending. There would be no tax increase. Instead, the White House tellingly emphasized that the cuts would “reduce non-defense discretionary spending to its lowest level since Dwight Eisenhower was President.” The deal also created a bipartisan congressional super committee tasked with coming up with an additional $1.5 trillion in savings. If the committee failed, an automatic process of savings measures would be triggered, which would include tax increases and spending cuts, with Social Security, Medicaid, and a few other programs exempted from the cuts.

Since the announcement of that deal, we’ve seen two developments. First, the congressional super committee tried—and failed—to come to an agreement. At each phase in the negotiations, which ended in November, the Democrats played the responsible adult, the Republicans the wild child. The Democrats came in with a proposal to raise taxes by $1.3 trillion and cut spending by $1.7 trillion (including cuts to Medicare and Medicaid). The Republican response: $2.2 trillion in cuts (not much more than the Democrats) and no tax increases. By the end of the negotiations, the Democrats had reduced their tax increase proposal to $400 billion and were offering nearly a $1 trillion in spending cuts; the Republicans tendered $640 billion in spending cuts and $3 billion in tax increases. In other words, not only were the Democrats promising to cut far more than were the Republicans, but they also promised to reduce the debt overwhelmingly through spending cuts rather than tax increases.

Second, now that that the super committee has failed, the GOP has predictably begun to balk at the defense cuts mandated by the deal. (I say predictably because just after the deal was announced, I got into a heated argument with a political scientist over that very issue. Where he was elated by the defense cuts, I warned that the Republicans would almost certainly renege on them.) Throughout this past summer, the GOP promised to make the so-called sequester a major issue in the election, and the 2012 Republican Party platform (see page 40) enshrines their opposition to it:

Sequestration—which is severe, automatic, across-the-board cuts in defense spending over the next decade—of the nation’s military budget would be a disaster for national security, imperiling the safety of our servicemen and women, accelerating the decline of our nation’s defense industrial base, and resulting in the layoff of more than 1 million skilled workers. Opposition to sequester is bipartisan; even the current Secretary of Defense has said the cuts will be “devastating” to America’s military. Yet the current President supported sequestration, signed it into law, and has threatened to veto Republican efforts to prevent it. If he allows an additional half trillion dollars to be cut from the defense budget, America will be left with the smallest ground force since 1940,the smallest number of ships since 1915, and the smallest Air Force in its history—at a time when our Nation faces a growing range of threats to our national security and a struggling economy that can ill afford to lose 1.5 million defense-related jobs.

So here we are, entering a campaign with Obama begging the media to recognize him and the Democrats as the party of austerity—for being willing to make difficult and deep cuts to Medicare and Social Security—and Republicans happily calling for a constitutional amendment requiring congressional super majorities for tax increases (see page 4).

Ironically, it was during the heyday of the New Deal that we first got a glimpse of the way we live now—from none other than John Kenneth Galbraith. As Bartlett shows, when Galbraith learned of Kennedy’s plans for a large tax cut in 1962, he shrewdly observed in his diary that “lower tax revenues will become a ceiling on spending.” Though the economics of the tax cut were impeccably Keynesian, Galbraith was far more concerned about the politics, which he thought were dangerous. As he explained in his testimony to Congress in 1965:

I was never as enthusiastic as many of my fellow economists over the tax reductions of last year. The case for it as an isolated action was undoubtedly good. But there was danger that conservatives, once introduced to the delights of tax reduction, would like it too much. Tax reduction would then become a substitute for increased outlays on urgent social needs. We would have a new and reactionary form of Keynesianism with which to contend.

What Galbraith could not have foreseen—ensconced in the New Deal consensus as he was—was that that the real ceiling on social spending would be set not merely by the Republicans but also, and perhaps more fatally, by the Democrats.

Once upon a time Republicans were tax collectors for the welfare state. Now Democrats are the austerians of reactionary Keynesianism.

This post is cross-posted at coreyrobin.com.



FredR 08.30.12 at 5:49 pm

“Today, the ratio of public-sector employees to the overall population is the lowest it’s been since 1968. That, of course, isn’t the only measure of the size of government, but it’s a pretty damn good one.”

Is that a good measure? At first glance, it seems like a not so good measure to me, particularly when you’re talking about fiscal issues…


Miracle Max 08.30.12 at 5:59 pm

Nice to see CR here. No, counting government employees is not satisfactory for the Federal government. In the U.S., the Feds mail checks (to the poor, to state and local governments, to defense contractors, and for social insurance), the states provide services.

Since Reagan, the negative shock to spending was during the Clinton Administration, in terms of so-called discretionary spending (excluding social insurance, anti-poverty benefit programs, interest). There was also a reduction in the Federal workforce but a corresponding increase in contracting (another reason counting civil servants is unrevealing).

Otherwise a magisterial blog post.


Marc 08.30.12 at 6:31 pm

We now contract with private employers to provide a lot of government services. I certainly think that this wastes money rather than saving it. However, wouldn’t this impact the fractional public sector employment?


Miracle Max 08.30.12 at 6:34 pm

Some waste, some not waste; obviously it depends. As to the fraction, yes it reduces it. See Paul Light for estimates of the “shadow public workforce.” They are high.


SamChevre 08.30.12 at 6:48 pm

I would also note that reducing the number of Postal workers, and soldiers, and increasing the number of employees in the regulatory and administrative workforce, may result in fewer employees but doesn’t correlate well at all with most senses of “what decisions can be made without considering the government?”


MPAVictoria 08.30.12 at 7:49 pm

” “Today, the ratio of public-sector employees to the overall population is the lowest it’s been since 1968. That, of course, isn’t the only measure of the size of government, but it’s a pretty damn good one.”

Is that a good measure? At first glance, it seems like a not so good measure to me, particularly when you’re talking about fiscal issues…”

Oh I don’t know I think it is a good one. People on the right are always talking about scary “Big Government” and how it is always growing. Nice to show that in fact, by many measures, it is shrinking.


Rakesh 08.30.12 at 8:09 pm

This is a long piece, and I don’t or didn’t get the explanation for austerity in my quick perusal:

Is it

fear of Kaleckian full employment given that the mec is already depressed; or

that the Dems want to convince their wealthy investors that there never will be a reason to raise their taxes, and keeping them on board is more important than the interests of the unemployed poor who vote at low rates anyway (I think this is the favored explanation, and of course the wealthy are convinced that their disposal of their own income will do a better job of stimulating the economy and protecting the indigent through philanthropy than anything the government could do so of course they do not believe any steps should be taken that could possibly result in steep progressive taxation in the future–here as elsewhere the idea of the ruling class are the ruling ideas); or

the Rubinite Dems think that the stimulus the economy is getting from presently low interest rates is not worth risking on more fiscal stimulus that could put somewhat upward pressure on interest rates; that would leak to some extent abroad; and could possibly undermine business confidence.

The third point raises questions about structural limits on counter-cyclical state activity.

I am also worried by the narrow focus on US employment rates only

What about the effects the monetization of US debt in the soon-to-be seen QE3 will likely have on the currency values of emerging markets and the dangerous global situation that may result. See recent Michael Casey column.


Mao Cheng Ji 08.30.12 at 8:16 pm

OP: “Despite the record of austerity the Democrats had accumulated during the 1990s, George W. Bush refused to hold onto the surplus. Having come to maturity—to the extent one can say Bush ever matured—in the party of Reagan, Friedman, and Wanniski, he thought it imperative that any money the government had be returned to the tax payers. ”

Is this really a good explanation; are we witnessing a battle of ideas?

Even ‘anxious to appease the bond market’ doesn’t quite sound like a comprehensive analysis; why is it more important to appease the bond market than to fulfill the progressive economic agenda set out during the campaign?


MPAVictoria 08.30.12 at 8:30 pm

“I am also worried by the narrow focus on US employment rates only”

These are employees of the US government! Exactly who’s employment rates should they be focused on?


straightwood 08.30.12 at 8:53 pm

Because the billionaire elite now believe that they can fully decouple themselves from government-provided services, there seems to be no limit to the punishment they are prepared to administer to the poor and middle class. They have purchased the government and are destabilizing our society with the politics of predation. They have sown the wind and will reap the whirlwind.


mpowell 08.30.12 at 9:35 pm

This is an interesting post. You would have thought that Bush would have taught the Democratic party it’s lesson on the futility of debt management if they had not already learned it under Reagan. What’s even worse is that this is a terrible time to be worrying about the federal deficit. On the other hand, your post aside, I am not 100% convinced that Obama is truly committed to deficit reduction. It has always been clear that insisting on tax increases was a deal breaker for house Republicans so we can not really interpret Obama’s negotiations as being in good faith to lead to a deal. At the same time, they had to come up with something to get the debt ceiling lifted. So including the poison pill of defense spending reductions may have been the best solution, even if you preferred a policy of strong fiscal stimulus.

I have no idea what austerians of reactionary Keynesianism means, but it is quite unfortunate that the democrats elites has become enslaved to an idiotic macreconomic policy if that is indeed what has happened. But I remain unsure.


Tim Worstall 08.31.12 at 12:04 am

“The typical historical process is that the spenders put through laws which increase government spending. A deficit emerges. The fiscal conservatives scratch their heads and say, “My God, that’s terrible; we have got to do something about that deficit.” So they cooperate with the big spenders in getting taxes imposed. As soon as the new taxes are imposed and passed, the big spenders are off again, and there is another burst in government spending and another deficit.”

Well, yes, and? One current political argument in the UK is that the way to deal with the deficit, when public spending is at well above historical levels as a %ge of GDP, is by raising taxes not reducing that spending.

Sure, there’s the Keynesian argument that we shouldn’t be worrying about the deficit at all in a slump. But it is possible, even without being excessively cynical, to think that there might be some of that ratchet effect going on….


Watson Ladd 08.31.12 at 1:30 am

That 30% of all children in the US must be fed is not a good thing. Certainly it is better then the alternative, but I think one must honestly ask whether or not the uselessness of the parents under capitalism reflects itself in the coming uselessness of the children. The increased role of the state is not freedom, nor would its abolition be.

Even if the state were to make work for those without, such work would always have the character of falseness about it, somehow outside social relations. I think the Republicans, in whatever corrupted measure, understand this. And the Democrats, being aware of the problems, surpress the knowledge that the welfare state was never emancipatory.


Eric H 08.31.12 at 1:34 am

Fear not.

“During the 1980s, the Republicans cut taxes and ran up huge deficits. Then Bill Clinton came into office and announced his intention to reduce deficits. Anxious to appease Robert Rubin and the bond market, he abandoned whatever pretense of a progressive economic agenda he had set out during the campaign. He and the Democrats raised taxes and allowed government spending to decline dramatically as a percentage of GDP. By the end of his second term, Clinton had managed to generate a surplus—with the explicit purpose of not only reducing the debt but also shoring up Social Security—only to have the Bush White House squander that surplus through massive tax cuts and increased military spending.”

I believe that it would help if articles like this could also account for the following in their analysis (and by the way, I also point these out to Republicans who make the exact mirror image claim of this):

Speakers of the House of Representatives
Tip O’Neil, D, 1979-1987
Jim Wright, D, 1987-1989
Tom Foley, D, 1989-1995
(That’s pretty much all of the Reagan and Bush years.)
Newt Gingrich, R, 1995-1999
Dennis Hastert, R, 1999-2007
(That’s pretty much all of the Clinton and Bush years.)

Senate Majority Leader
Robert Byrd, D, 1977-1981
Howard Baker, R, 1981-1987
George Mitchell, D, 1989-1995
Bob Dole, R, 1995-1996
Trent Lott, R, 1996-2001
Lott and Daschle 2001-2003
Frist, R, 2003-2007

Yep, those are Republicans mostly controlling Congress during the Clinton era when spending was brought under control (remember Clinton calling Gingrich’s plan “irresponsible” and then declaring the era of Big Government to be over?), and Democrats mostly controlling Congress during the Reagan era when deficits took off (remember the annual “declare the President’s budget dead on arrival” parties?). Any Republican could simply take the OP, replace “Clinton” with “Gingrich” and “Reagan” with “O’Neill” and be just as accurate. Nearly. It does not help, IMHO, to simply ignore those facts and pretend that one’s favored party is filled with public-minded, principled do-gooders and that the other guys are either stupid, insane, or completely evil. The other side has reason — good reason — to believe just the opposite.


Corey Robin 08.31.12 at 2:40 am

Eric #14: If you read that paragraph — or the piece as a whole — as an endorsement of one party and a rejection of the other, you’ve missed the entire point of this article. Or I haven’t done a very good job making it.

Rakesh #7: The reason you “didn’t get the explanation for austerity in [your] quick perusal” is that I didn’t really offer one. I agree that that is the big hole in the piece, but it was a rather deliberate hole. My goal was to identify a syndrome whereby the two parties had switched roles, and to point out how the Democrats have found themselves in the exact same situation the Republicans were in between the 50s and 70s. The truth is, I don’t really know why the Dems have become the party of austerity. I had in the original draft of the piece a concluding paragraph where I threw out some possible explanations — in addition to some of those you tender here, I had the decline of organized labor and the collapse of socialism — but since I clearly didn’t know what the deal was, I decided to keep quiet. Alex Gourevitch told me he’s working on a followup post where he attempts to provide one. So stay tuned.


MPAVictoria 08.31.12 at 3:27 am

” It does not help, IMHO, to simply ignore those facts and pretend that one’s favored party is filled with public-minded, principled do-gooders and that the other guys are either stupid, insane, or completely evil.”

Umm the Republican Party is insane and evil.


Tom Hurka 08.31.12 at 4:12 am

FWIW, in Canada it was Liberal governments under Jean Chretien in the 1990s that eliminated a large federal deficit, almost entirely by spending reductions, and Conservatives under Stephen Harper who since 2006 have recreated a deficit, initially by tax reductions though later also by stimulus spending. So a similar pattern.


heckblazer 08.31.12 at 4:21 am

Miracle Max @ 2:
Indeed, under the Clinton administration outsourcing work to contractors was used to score political points by allowing them to say they had cut the size of government without actually reducing the services government provides. The Bush administration then realized you could do the same thing with war – hire a bunch of military contractors and you technically have fewer soldiers in the field getting killed. In the last few Republicans further realized that replacing unionized public workers with non-unionized contractors is a nice way of destroying a Democratic power-base. That government contracts can mean more money for their cronies is naturally a bonus.


The Raven 08.31.12 at 9:03 am

That was a brilliant and interesting article. Thank you.


Eric H 08.31.12 at 12:26 pm

Corey – fair enough, the rest of the article is fairly balanced save for the occasional loaded adjective. But that paragraph that I quoted is the Standard Narrative of the Democratic Partisan for the 1980s and 1990s.


JSeydl 08.31.12 at 1:19 pm

“Of course, Packwood was proven wrong. By the end of the Clinton presidency, there was a surplus, and Gore ran on a platform in 2000 of using that surplus to—among other things—help pay down the debt.”

Very nice write up. I do have a problem with the above quote. however. The only reason Democrats were able to run budget surpluses under Clinton was because of the monstrous dot.com bubble, which boosted tax collections off the chart. The CBO’s projections in the early 1990s showed no such surplus. So it wasn’t about “responsibility” under the Clinton Administration.

In fact, letting an $8 trillion tech bubble grow to unstable proportions was highly irresponsible. Both parties encourage asset bubbles; because both parties enjoy a strong dollar and a large trade deficit. That’s a political trend that needs to change.


Marc 08.31.12 at 2:26 pm

@20: Reagan and company didn’t even attempt to submit balanced budgets, or budget proposals with deficit cuts. Clinton did. There is a difference between the two parties, and the fact that we had split control of government almost continuously doesn’t change that. A major reason why Clinton had more balanced budgets, for example, is the 1993 tax increases that were fiercely opposed by Republicans. Two enormous contributors to the Bush II deficits were tax cuts on the rich and the unfunded Iraq war that he engineered. It’s hard to argue that the Republican dogmatism on taxes, and their dedication to low taxes on the rich, is an irrelevant detail.


Miracle Max 08.31.12 at 4:04 pm

@21 Yes, the impact of 90s legislation and deliberate policy in making the budget surplus is often overstated.


mulp 08.31.12 at 5:47 pm

Obama has not fallen into the trap Clinton and other Democrats have since 1981 of spending political capital to reduce the deficit without Republican buy in.

Republicans have screamed about the deficit and debt, and Obama played the reasonable man, but when it came to extending the Bush tax cuts, not only did Obama make sure there was extensions of stimulus spending, and extensions of tax cuts for workers which increased the deficit from existing law. Clinton would have shutdown government and let Newt pillory him and cut a deal that slightly cut taxes and spending (rates) with Clinton declaring victory for losing. Obama has forced Republicans to increase the deficit to increase spending, to the degree that the Republican party went to war with itself. Obama could have let the Bush tax expire, and since the Bush tax cuts killed jobs, not created them (Bush policy created jobs far below the rate of Carter policy in a much more favorable economy than Carter faced) the economy would have improved. But Obama used the demands of Republicans for tax cuts to increase spending.

By the way, tax cuts historically kill jobs, tax hikes create jobs. The job creation turned around after Hoover agreed to tax hikes in 1932. If you explain that job turn around in 1933 on Fed easy money, why was the dual easy money of the Fed and the shadow banks unable to beat the Carter job creation rate when the Fed over tightened and then set a steady course on money expansion from 1980-1983 with the shadow banking beginning to take monetary policy out of the Fed’s hands. Volcker speaks of this in the early 80s. The job losses began 8 months into the Reagan administration when Reagan actually signed the budget deal that cut taxes. Fed monetary growth targets and reality did not fall, and the shadow banks – the disintermediation of bank deposits shifting into money market funds – was expanding the money supply out of the control of the Fed. The conservatives claim the Reagan recession was due to the Fed fighting inflation, but the Fed didn’t tighten the money supply, its rate of growth. What Volcker did not do is continue the Eccles policy of always monetizing any Federal deficit (a matter of controversy leading to his end as chair). Reagan’s tax cuts drove up interest rates, which the tax cuts constrained spending. Reagan doubled the gas tax to fix the roads as demanded by the States and drivers and mostly truckers. Reagan hiked taxes to resolve the SS crisis and on top of that he agreed to automatic tax and benefit hikes by indexing – if only the gas tax had been indexed. But to get many of Reagan’s policies, he agreed to spending – deficits didn’t matter.

Let’s consider the box Republicans are in today. Obama got lots of tax cuts to all end at the same time, plus lots of spending cuts to occur then as well. One of the spending cuts the Republicans can’t allow to occur – the doc fix – Obama will deal on that one easily, but at a price. If Obama wins, the battle continues, with Obama having more leverage to divide the Republicans in the battle over lots of spending to get all the Bush tax cuts extended which will keep the deficit very high and angering the Tea Party. If Obama loses, Romney-Ryan have made promises that can only be met by shredding the economy and creating a crisis in poverty. Their outs are tax hikes or continuing huge deficits. The Republican Party will alienate the vast majority. No Republican has come up with fiscal/economic policies that come close to the growth and jobs of Jimmy Carter’s 4 years.

My final point, Republicans need to be constantly benchmarked against Jimmy Carter. Reagan fails in comparison. HW Bush fails, GW Bush fails.

I disagree with Carter on a number of policies because they led Reagan to policies that created widespread terrorism – idealism mixed with fighting commies led to fighting commies by any means including terrorism. But on long term economic policy, Carter was more effective than any Republican I’ve looked at.


Wanderer 08.31.12 at 10:50 pm

Corey: Excellent post, but the analysis needs to be deepened. As I see it, the key shift is in the strategy of the economic and political elites around the Republican party; they once genuinely believed in the importance of a Herbert Hoover style economic doctrine by which balanced budgets, by generating “business confidence” lead directly to economic growth. They may still have some belief in this idea in the back of their minds, but in the front of their minds is an extreme antipathy to any governmental support for the working class. Hence the dominant strategy is to insist rhetorically balancing the budget but actually slashing social spending whenever possible and deliberately blowing up budget deficits by spending on their priorities (read defense spending) and lowering tax rates. In other words, political ideology in the form of a rabid anti-statism has largely trumped any consistent economic ideology. As for the Democrats, associated with a pro-statist ideology, they desperately try to achieve credibility with their wealthy backers by insisting to the working class that they will protect some of their benefits (save social security and so on) while actually being as seriously committed to running the Federal government in a pro-corporate way as the Republicans ever were. So the analysis would have to look at the weak power of the working class (and its ever declining influence) and the corresponding tendency of the Democrats to accede to a dramatic rightward shift in the political spectrum since the nineteen-seventies.


UserGoogol 09.01.12 at 2:14 am

Keynesianism isn’t exactly anti-austerity. The standard Keynesian line is that deficits should be balanced over the long run, with some countercyclical tendencies over particular years. And since most of the time we’re not in recession and because the recessions of 1992 and 2000 were relatively mild, Keynesians have had plenty of time to get in the habit of promoting balanced budgets. Right now we’re in a time period where balanced budgets are a very bad idea according to Keynesianism, but once you get in a habit it can be hard to break. (That doesn’t completely explain the change, but it reframes the problem to see that liberals weren’t sacrificing their principles.)

But I think a bigger factor is probably the post-Civil Rights realignment of the political system. Political parties aren’t fixed entities. Republicans were deficit hawks, but conservatives were more ambivalent about the matter. But around the time of the “Reagan Revolution,” there was a political shift where deficit hawk moderates moved on net from the Republicans to the Democrats.


Lee A. Arnold 09.01.12 at 2:19 am

I think we may happen upon a new sort of crossroads. Capitalism is reintroducing its contradiction into many advanced countries. It is everywhere and unavoidable. New media has made it easier to see. A rather different factor is that a big welfare state has become necessary, particularly due to healthcare costs.

The Dems are only marginally ahead of the Republicans in terms of understanding. Instead, they look at the opinion polls. Every opinion poll about government debt reveals, among the voters, a serious concern on the issue and a strong suspicion that other people are benefitting from the government purse. The Dems, being politicians, are unlikely to say anything different.


Kaleberg 09.01.12 at 4:06 am

We’ve been doing a long term experiment with low tax rates for a number of decades now and the only obvious result has been economic stagnation for the vast majority of people who have to work for a living. Sure, Republicans tend to borrow a pile of money and blow it on some discretionary something or another while Democrats tend to cut spending and borrow less, but our tax rates are nothing like the growth inducing rates from the 40s to the 80s.

There are lots of good reason for having high marginal tax rates besides increasing government spending. The most obvious is that money in the hands of the wealthy is effectively removed from the economy and does nothing to improve living standards. Low corporate rates result in serious governance and efficiency issues in those government chartered collectives called corporations. As noted in the 1930s by Berle and Means, inadequately taxed corporations will simply turn over their money to their chief executives rather than investing in the business or rewarding the stockholders. England did the industrial revolution without corporations. Maybe we should start taxing them properly or eliminate them entirely. Limited liability and organizational immortality are serious government subsidies and the government isn’t getting its money’s worth.


chris 09.01.12 at 12:36 pm

The typical historical process is that the spenders put through laws which increase government spending. A deficit emerges. The fiscal conservatives scratch their heads and say, “My God, that’s terrible; we have got to do something about that deficit.” So they cooperate with the big spenders in getting taxes imposed. As soon as the new taxes are imposed and passed, the big spenders are off again, and there is another burst in government spending and another deficit.

Has this ever actually been true, or was it unmitigated bullshit from the word go?

I mean, it’s obviously not how government works *now*, as you point out in the rest of the piece. But was it ever historically a valid analysis? When was government spending actually trending up, other than during the New Deal and WWII?

Of course, if you want to make it look like government spending is trending up, there are easy dishonest ways to do it — just use absolute numbers, rather than percentages of GDP/population/etc. Better yet, use nominal dollars during decades of double-digit inflation! But was there really a time since WWII when *honestly measured* government spending was trending up? Or tax receipts either, for that matter?

I was born during the Carter administration, so basically, government has been getting smaller and stingier for my entire life, except for the military. The ‘ratchet effect’ has been running backwards, in defiance of its name. Everyone except the super-rich has been getting poorer (except briefly under Clinton). And safety net programs of every kind only go down, down, down, to the point that people my age start doubting that they will even *exist* when we need them, let alone be adequate. And there are lots of voters younger than me. What is the case that the US is not doomed to shrivel into a banana republic? Watching Obama spin his wheels against the most obstructionist Congress in history is not exactly an encouraging sign.

I mean, I personally believe that he deserves credit for trying, and the party that kneecapped his efforts — not because they thought it wouldn’t work, but because they feared it *would* work and he would get the political credit — needs to be kept out of the driver’s seat at almost any cost. But that’s a tough sell to people who have only seen government get less and less helpful.


Watson Ladd 09.01.12 at 12:57 pm

How about always? Fred has real government spending on a largely upwards trajectory when divided by population. Even the recent cutbacks haven’t dropped per-capita real spending to the level of Bush’s first term. Now, this is using a price deflator and not something that measures Bamol’s cost disease. But there are details with using a more realistic deflator: I don’t think you get an overall downward trend.


actio 09.01.12 at 4:19 pm

Brilliant post! Tom Hurka mentioned some similarities in Canada. I’m curious if there are similarities in pattern in social democratic or left politics over the same time periods in Europe as well. If the pattern has such a wide scope then can anything be said of where it started and how it spread internationally?


UserGoogol 09.01.12 at 5:35 pm

chris: The tendency since WW2 has been for military spending to be a smaller and smaller percentage of government spending, actually. Reagan and Bush Jr both made rather big pushes in the opposite direction, but not enough to reverse the tide. And transfer payments (which mostly means Social Security and Medicare, plain old welfare has never been that much of the budget to begin with) have actually made more and more of the budget over the years.

And as Watson Ladd notes, government spending per capita has continued to go upward, although government spending as a percentage of GDP took a bit of a drop in the 1990s, so that part fits into your narrative.


UserGoogol 09.01.12 at 5:45 pm

Hmm… because FRED is confusing, that “transfer payments” link is to transfer payments as a percentage of GDP, not of government expenditures. This one is transfer payments a percentage of government expenditures. It’s still heading upward, but the recession-caused spikes are significantly smoothed out.


Peter T 09.02.12 at 4:28 am

Government may be getting bigger, but this may be due to the monetisation and transfer of non-market services previously delivered by households or local communities (childcare, care of the old being the two biggest). It may be that, as the need to earn more in the market presses harder, transfer to government is the best, perhaps only, option.


chris 09.02.12 at 5:38 pm

The tendency since WW2 has been for military spending to be a smaller and smaller percentage of government spending, actually.

Nearly flat since the late 70s, actually. What’s the opposite of plateau? Thanks for the data, though.

Oh wait: there’s a footnote that Iraq, Afghanistan, and the DHS are not included. That would probably change the numbers for the last 10 years a bit, and make the graph overall more of a U shape than anything.

Also, I notice the denominator on that graph is % total govt spending rather than something like % GDP — the introduction of an ambitious new program like, say, the War on Poverty could account for the decline in military spending *as a fraction of government spending* without any actual decline. Although the decline also roughly coincides with withdrawal from Vietnam, so it could be real after all. A stacked graph of different spending categories as %GDP would help resolve that kind of question.

As for the bigger question of overall spending, dividing by population rather than GDP could pretty much come out of a textbook on how to lie with statistics — but the link at 33 does indeed appear to show that spending was on the rise until Reagan (and has basically flatlined since then, or declined aside from the current crisis). So I guess that answers my question; Friedman *did* have a point, once upon a time, but what he was saying is no longer true or relevant.


Watson Ladd 09.02.12 at 7:21 pm

chris, why would a richer country need to spend more on government? It’s not a good thing that food stamps are needed by 1/3 of all children, even if we are rich enough to pay for it all.


Bruce Webb 09.02.12 at 8:26 pm

To pick up on points by Peter @34 and Chris @35.

Social Security simply does more, and by conscious design, in 2012 than it did during the initial design and implementation phases. The key inflection points are the Acts or Amendments of 1935, 1939, 1950, and 1955 to which we could add the addition of Medicare and Medicaid (particularly in the form of long term care for the elderly) in 1964-65. Social Security as originally implemented didn’t have a Survivors’ component, that came in 1939, it didn’t have a systematic mechanism for boosting benefits after retirement, that came in 1950. Ditto for Disability in 1956 and Long Term Care after the 60s. In each case what had been long considered as general societal responsibilities (care for the childless old, widows, orphans, ‘cripples’) were shifted from the sectors previously responsible for them: extended family, churches, charity, community, states and local governments {remember the County Home that used to warehouse the old, poor and mentally disabled?} to the specific societal sector that is the Federal Government.

Now whether this shift was on balance a ‘good thing’ (and I am in the camp that says that it was) is properly measured by reference to total societal wealth vs total societal expenditures vs actual outcomes for the various dependent populations. But you only obliquely get hints of this by restricting analysis to percentage of federal expenditures whether or not expressed as share of GDP and still less by measuring THAT against military expenditures.

Social Security in the form of various SS Title 2 programs does more in 2012 than it did in 1940 (and before that Title 2 didn’t do much of ANYTHING except collect taxes). On the other hand the heavy burden of SS Title 1 spending, a General Fund paid for program that served more seniors at higher cost until 1951 has been phased out entirely. Or on another analysis replaced by various programs under Medicaid and SSI (which does not stand for ‘Social Security Insurance’)

Meaning that much of the above discussion is too narrowly technocratic in focusing on relative expenditures between say defense and ‘entitlements’ while often being sloppily non-technocratic in not taking into account programmatic shifts in various programs both within and without federal funding/administrative categories and totally ignoring the underlying equity/pragmatic issues. Are we adequately taking care of the basic needs of an ever increasing absolute and proportional share of the population represented by the elderly compared to before? As opposed to whether we are adequately defending a coast line and air space of a United States that has officially not expanded since 1898 or by some counts 1960? (Naval defense not being dependent on total population count, at worst on that of coastal population, Dallas, Chicago, Detroit, and Phoenix not really being part of the calculation).

To sum up an overly verbose piece: you don’t necessarily measure effective, efficient, and equitable simply by dividing GDP by population and comparing relative weighting over time. Better (IMnot-soHO) is to work backwards from the equity and efficiency. Did the New Deal and the Great Society get us closer to the ideals of the Four Freedoms? Or not? http://www.ask.com/wiki/Four_Freedoms
(And yes one of those freedoms depends on military and police spending, my heart is not bleeding that freely.)
By that same token did we really get the All Boats Rising on the Supply Side Tide or the universal freedom implied in Ownership Society? I mean ‘Compassionate Conservatism’ was not sold on the Randian basis of “I got mine and FU”, not originally. It at least made a bow to small d democratic utility.


js. 09.03.12 at 3:28 am

Second, the “starve the beast” argument sits uneasily with the basic claim of supply-side economics

I think this is totally right and would like to see the point elaborated. You say that “the two arguments don’t contradict each other … but they press in different directions,” and that’s true. But I think that while they stop short of contradicting each other, they do more than just press in different directions. Not only are the goals entirely different in the two cases, under lots of real and plausible scenarios, they are highly divergent and plausibly lead to contradictory policy recommendations. Maybe this is what you mean by “press in different directions”, but it still seems to me that the point could be made much more strongly, or perhaps that one could make a much stronger claim.


ploeg 09.03.12 at 3:57 pm

Would like to see you explore the role of the Southern Strategy in all this. Since the start of the New Deal, federal spending has favored the (poorer) South over the (richer) Northeast in particular. In the 1970s and 1980s, the legislators from the South migrated from the D to the R column, but that didn’t mean that these legislators still didn’t want to maintain the net flow of Federal money to their areas, and didn’t much care whether deficit spending was used to maintain this flow.


Norwegian Guy 09.03.12 at 4:52 pm

You would think dividing public spending by GDP and not by capita would be too obvious to need a justification, but I’ll give it a try.

People expect higher-quality public services in a richer than in a poorer country, and are able and willing to pay more money per capita for them in taxes. It’s also necessary to notice that a rich country is a high-cost country. Everything costs more, including the public sector. This includes both higher wages for public employees, but also higher costs when the government buys goods and services from the private sector. Higher costs also means that what could perhaps be a sufficient level of welfare/pensions etc. in a poorer country, would amount to next to nothing in a richer country. All this leads to public sector spending per capita increasing over time as the country is getting richer, in the same way as spending per capita on housing, cars, entertainment and hairdressing is increasing as well.


Charrua 09.04.12 at 4:47 pm

The basic dynamic here is that NOBODY really cares about the deficit. That is, there is not a single large group of voters who really cares about it. They care about taxes or about spending and their economic wellbeing but what they say about the deficit is basically just talk. ¿Did you ever heard somebody say “I’m earning more, my taxes are lower, unemployment is low, but I’ll vote for the other guy because the deficit is 3% of GDP”?
Given that simple fact, whenever the elite of a political party takes deficit reduction as their mission, they put themselves in a disadvantageous position, since there is no electoral reward for their efforts.


bdbd 09.04.12 at 5:08 pm

Speaking of austerity, does anyone actually eat all those muffins and baked items that are laid out on Chris Hayes’ table?


Dr. Hilarius 09.04.12 at 5:27 pm

First, “starve the beast” is the real strategy with the goal, as prior posters have stated, to make government not work well to advance the attack on government in general. The public expression of deficit worries is for the rubes in the cheap seats rather than an actual policy concern.

As for why government costs might grow faster than population: demographics and urbanization. The first is obvious and well known. The boomers, like me, are getting old, needing more medical care and, eventually, nursing care. Urbanization adds to the cost of services as urban environments require much greater infrastructure. If you live on 60 acres in a sparsely populated area, you can get by on a septic system, burn or bury what garbage the pigs won’t eat and get by with a two-lane road without stoplights. In the big, wicked city you need expensive sewage treatment, sewer lines, complex traffic management, garbage collection and on and on. New problems of surface water management and non-point pollution arise.

A constant problem as cities, and suburbs grow, is that the cost of new infrastructure requires big tax or levy increases. Developers never pay anything close to the cost of the infrastructure required to service new development. Consequently, infrastructure maintenance and expansion is deferred and services suffer. Another failure of government.

Urbanization has gone hand-in-hand with family mobility which in turn has destroyed extended family and community support. Mom and Dad live in A, their kids live in B, C, and D. No one is there to take care of aging Mom and Dad. Neither are grandparents available to care for grandchildren. Neighbors are transitory and not often a source of support. Politicians invoke the old virtues and suggest that family, church and community can replace government services. Too bad capitalism has destroyed those very institutions.


Marc 09.04.12 at 5:31 pm

@36: We’re facing massive demographic changes with the retirement of the Baby Boom generation, and nations across the globe are dealing with aging populations. A nation with a larger fraction of older people will be one that has to spend more on retirement and medical care. These are strong drivers of federal funding in the US; so simply providing precisely the same services that we do today will involve a large increase in government spending over the next 15 years or so.


JohnR 09.04.12 at 5:59 pm

“As soon as the new taxes are imposed and passed, the big spenders are off again, and there is another burst in government spending and another deficit.”

And here is the ‘economic’ version of the famous old “States’ Rights” argument of the 1850s. So, what “government spending” are we talking about here? Why, it’s our old friend, the Hated New Deal/Great Society. What “new taxes” are we talking about? Why it’s the confiscatory taxes on the brutally oppressed “job creators”, who have seen their share of the nation’s income drop like a rock* over the past several decades.
It’s not about deficits, or debt or anything like that. It never has been, for the True Believers. That’s the snake oil pitch. It’s always and only been about excising the socialist Liberal Entitlements Programs from the government. Norquist just picked up the flag and ran with it; I’m not sure if he invented the strategy or merely improved it, but it doesn’t really matter. The point is, since it proved impossible to eradicate the FDR/LBJ policies legislatively on their merits, it became necessary to force the country to choose between guns and butter. Run up huge deficits, get into wars, and when we can’t afford both, the Social Programs will have to be eliminated. That was the goal of Reaganomics, as it has been since 1933 and continues to be. Cut taxes, keep or increase military spending, and the deficits will make it possible**. All the rest is bamboozle.

* or not.
** you know we’re screwed when the Democrats sign onto the 80-year GOP crusade to finish off what’s left of the New Deal. Medicare was a foregone conclusion, but Social Security should have been safe. Well, money talks.


Watson Ladd 09.04.12 at 6:37 pm

JohnR, Social Security is financed by taxing those whose share of the national income has been dropping like a rock. At some level the Republicans are responding to real problems: a collapsed national economy, depressed housing market, mass hopelessness. But they are doing so in a reactionary manner. When were the democrats ever better?


MPAVictoria 09.04.12 at 9:01 pm

“JohnR, Social Security is financed by taxing those whose share of the national income has been dropping like a rock. At some level the Republicans are responding to real problems: a collapsed national economy, depressed housing market, mass hopelessness. But they are doing so in a reactionary manner. When were the democrats ever better?”

Always. The democrats are always better Watson.


Bill Jones 09.04.12 at 9:08 pm

“Of course, Packwood was proven wrong. By the end of the Clinton presidency, there was a surplus”
This is the lie that will not die.
Here is the history of the debt.

It has gone up every year since 1958.

Note:”Includes legal tender notes, gold and silver certificates, etc. ”

If you are reckoning debt you don’t just count the bank loans but the credit cards, iou’s, pawn tickets and the mob marker you’re paying the weekly vig on.


eddie 09.04.12 at 11:00 pm

Remind us, if you will, Bill Jones, what is the distinction between the debt and the deficit. Do you see any distinction at all? Should there be?

Personally I think there shouldn’t be, but am open to persuasion.


chris 09.05.12 at 12:12 am

chris, why would a richer country need to spend more on government?

Paved roads? Indoor plumbing? Decent lifestyles for the retired? Health care for all citizens (leading more of them to live long enough to retire)? Educational opportunity regardless of the students’ parents’ personal wealth? Feeding all hungry children in the country regardless of their parents’ personal wealth? Third world and preindustrial countries can’t afford these things, but countries that can afford them are likely to want them.

Of course, if more of the nation’s wealth is shared by the working class, the need for some of these things to be publicly paid for might diminish, but that’s not the country we have. Inequality has been growing so much faster than income itself that the working class has actually been losing ground since Reagan or so.

Also, a rich country might need to spend more to defend itself and enforce the law because it is a more attractive target for criminals of all sorts, both foreign and domestic. This effect might specifically depend on being *richer than other countries* as much as on being absolutely rich.


Patrick 09.05.12 at 12:18 am

Both Corey Robin and Watson Ladd have used strange to me metrics for measuring government. My thought for the “first approximation” measure would have been spending as a fraction of GDP. Fraction of employees brackets out contracting and transfer payments, but per capita brackets out the growth of the economy. Neither seems a sensible measure.

Now if you wanted to tell me that our measurements of the economy are over focused on GDP or other values based around “How much goods/services/money is there” and under focused on various metrics of employment and distribution I’m very sympathetic. But it seems to me that a discussion of taxes and spending levels over the long term is exactly where big aggregates of money are sensible metrics. Per capita is just baffling.

On the issue of how to Keynesianism despite racheting effects, the traditional way is automatic stabilizers. We actually do have these to a limited extent in the US. A progressive income tax collects much less money as income drops, while means tested aid programs pay out more. In a boom, the same policies become increased tax revenue and decreased spending.

We just need much bigger stabilizers.


Random Lurker 09.05.12 at 8:35 am

@Watson Ladd 30
“Fred has real government spending on a largely upwards trajectory when divided by population.”

But if you speak of “real” spending, you have to take in account that government worker’s wages will usually rise whith productivity, so government spending will also rise with productivity.

Unless you expect government workers to have the same “real” wages they had in the ’30s: maybe some will even be able to buy black and white TV!

In other words government spending will always rise in “real” terms, the important variable is spending in relative terms (that is, as a % of GDP).


chris 09.05.12 at 12:08 pm

Random Lurker has a good point, too. There was a thread a while back, IIRC, about the standards of living of First World and Third World bus drivers and whether allowing the latter to immigrate would be a good thing; but more relevant to the present thread is that the wage difference between them inevitably shows up in the budgets of their respective bus agencies, even if the bus service provided is indistinguishable. The same goes for teachers, cops, etc. If you have a minimum wage you can’t pay any of your government workers less than that and have to pay some of them more. That’s going to drive up the government’s costs in a wealthier country even if it isn’t actually trying to provide a better quality of public services.


Watson Ladd 09.05.12 at 12:18 pm

@Random Lurker: Why can’t we expect productivity to rise in the public sector? The other reasons given (aging population, urbanization) are generally good ones. The increased need to transfer money around is probably a bad sign. Generally costs don’t increase along with wages: I’m aware of Baumol’s cost disease, and that government has a lot of costs we can expect low productivity gains in, but there are plenty of places in government where we could expect productivity gains.


Corey Robin 09.05.12 at 1:03 pm

@Bill Jones 48: The full sentence from my piece, which you neglected to quote, reads as follows: “By the end of the Clinton presidency, there was a surplus, and Gore ran on a platform in 2000 of using that surplus to—among other things—help pay down the debt.” Isn’t a necessary condition of “Gore ran on a platform of using the surplus to help pay down the debt” that there was indeed a debt? So how am I lying? Obviously, when I’m talking about the surplus, I’m talking about the annual budgetary surplus, which is how raging partisans like the OMB talk about such things. See Table 1.1 of this link: http://www.whitehouse.gov/omb/budget/Historicals. Look at the years 1998-2001. You’ll see that those were years that saw a surplus.


Random Lurker 09.05.12 at 3:32 pm

@Watson Ladd 53
Short anedoctical answer first, complex but imho interesting theoric answer later:

Here in Italy, we have a mostly public (statalized) health service. This would be an example of a public service where “productivity” did rise in half a century.
The Italian state had an option: a) it could arguably use the productivity increase to keep falling real prices and a health service fixed at some “real” level, say that of 1960; or b) it could use the productivity rise to actually deliver better care thanks to new technology, but at a price that rises in real terms but is arguably fixed in relative terms.
I think that most people would call A disinvestiment and B constant policy, since in reality most of us think of technological increases as something external to policy.

Long answer:

“Baumol disease” is just a clumsy way to explain something that was already obvious to classical economist through the labor theory of value: when productivity increase in one sector, the marginal utility of the stuff produced in that sector decreases.
For example, suppose that in country A a new technology is created, thorugh which t-shirts can be produced at half the cost (+100% material productivity in that sector), but the technology in throusers-making is unchanged (+0% productivity in that sector).
At some point there will be a lot of t-shirts and very few throusers, hence the marginal utility of t-shirts falls: people will be willing to pay pay very few for a new t-shirt. Hence, people in the t-shirt industry will be underpaid and/or will lose their jobs for “luddite” reasons. Those people will change jobs and become throusers-makers; this will go on until t-shirt makers and throusers-makers will have similar incomes.
Thus the “Baumol disease” is not at all a disease, it is the actual “ivisible hand” that drives resources from a field that had an increase in productivity (and hence a decrease of “added value per piece”) to one that, at the new conditions, produce more “added value”.
Thus in terms of “added value” a society has only a general increase of productivity, and not different productivity increases “per sector” (as long as the market works correctly), and real wages in the whole economy tend to grow at the same speed (excluding the period of “adjustment” to the new technology, when the market is not in equilibrium and in fact peple are supposed to change field of production).
In other words the distiction between sector that had an increase in productivty and sector that hadn’t is moot.


ajay 09.05.12 at 3:32 pm

I think what’s puzzling Bill Jones is that he can’t work out a way in which you can be making a surplus each year and your total debt load is still going up. I can, but he can’t.


understudy 09.05.12 at 3:38 pm

Echoing Watson, military personnel productivity is starting to become a big focus on front end design. When labor is cheap, you have +5,600 people on an aircraft carrier. When labor is expensive, you find you can automate – the newest US carriers have 4,600 crew – 1,000 less people. Not that the total cost is cheaper for the taxpayer, but at least fewer people are in harm’s way …


Bruce Wilder 09.05.12 at 5:31 pm

“Baumol’s cost disease” is a round-about way to talk about a microeconomic side-effect of macroeconomically moving income distribution in an egalitarian direction. It was written at the culmination of a long period, in which wages had tracked increasing productivity, and highlighted the effect that was having on the cost of “luxury” services. If that classic paper was re-written today, after a long period in which (in the U.S.) wages have stagnated, even as productivity increases have accelerated, the “disease” would have quite a different cast. On present trends, the U.S. economy is becoming service-oriented, and the median wage is on track to decline over the rest of the decade, in a reversal of Baumol’s cost disease, despite continuing increases in productivity, because of increasingly extreme upward redistribution of wealth, income and political power.


Bruce Wilder 09.05.12 at 5:46 pm

This might be relevant to the point about Baumol’s cost disease:

What Baumol studiously avoids, which the classical economists, of course, focused on, was economic rent. What distinguishes the New Deal political economy from the Reagan economy is that the New Deal, through taxation and regulation was at pains to restrain the destructive potential of the rentier class. The classical economists, living in a political economy dominated by rentiers of the landed aristocracy and landed gentry, could scarcely overlook the implications of giving free rein to the greed and stupidity of the enormously wealthy.

Any sensible economic policy, of taxation or regulation, would divert economic rents to public purposes, and radically reduce the claims of the very wealthy. And, consequently, any sensible economic policy would be tantamount to revolution. The Democratic Party establishment is unlikely to get behind revolution, even if the Republican Party adopts pre-emptive counterrevolution as its policy. So, the U.S. will continue driving toward the cliff, and almost certainly go straight over the precipice.


Bruce Webb 09.05.12 at 8:34 pm

Bill at 48:
“Here is the history of the debt.

It has gone up every year since 1958.”

Well that might better be called “partial history of the debt”. Because if we look at this application from that same site we get a different take:
“Total Public Debt Outstanding” = “Debt Held by the Public” + “Intragovernmental Holdings”. And “Debt Held by the Public” is by far a better measure of the effect of current Federal budgeting on world debt markets. Precisely because Intragovernmental Holdings are by and large not marketable (supposedly their weakness). If you use the web tool at the above link which is Treasury’s “Debt to the Penny” and insert start date Sept 30, 1999 and end date Sept 30, 2010, thus capturing the last full Fiscal Year of the Clinton Presidency you will see total “Debt Held by the Public” on the former date at $3.631 trillion and the latter at $3.405 trillion, or down by more than $200 billion over the year. Now true enough that same table shows “Total Public Debt Outstanding” actually going from $5.656 trillion on the former date to $5.674 trillion and so narrowly justifying your claim “it has gone up every year”, this is entirely due to the fact that Social Security surpluses end up scoring as current year Public Debt even as they represent obligations that might not be due for thirty or more years. But it is at least conceptually odd to claim that excess collections of Social Security FICA in 1999 that ended up adding to Intragovernmental Holdings and so Total Public Debt Outstanding make the undoubted fact that Clinton’s final full fiscal year showed a clear General Fund surplus and so a reduction in Debt Held by the Public “the lie that wouldn’t die”.

I am afraid too narrow a focus on the Debt Clock/Total Public Debt/Debt Subject to the Limit simply misses the counterintuitive effect of Social Security Trust Fund surpluses on that total.

Social Security surpluses score as reducing current year “Unified Budget” deficits even as they increase current year “Total Public Debt”. An odd result perhaps but doesn’t make true claims about Clinton surpluses undying lies. You are just using the wrong metric.

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