It’s rare that the soulless machinery of the presidential campaign system emits a telltale creak, exposing the terrifying vacuity that lurks just beneath all the overheated microprocessors on the motherboard. Yet on the eve of the holiday weekend, we were witness to just such a spectacle, in an interview that presumptive GOP nominee Mitt Romney granted to Time magazine’s politics correspondent Mark Halperin.
Early on in the proceedings, Mr. Halperin lobbed a simple procedural question Mr. Romney’s way: Why should a Romney administration tarry in its appointed mission to roll back the spending excesses of the Obama age? Why not, he wondered, “go all the way and propose the kind of budget with spending restraints that you’d like to see after four years in office? Why not do it more quickly?”
But in his response, Mr. Romney gave away the whole sick game of Republican austerity-sloganeering: “Well, because, if you take a trillion dollars, for instance, out of the first year of the federal budget, that would shrink GDP over 5 percent. That is by definition throwing us into recession or depression. So I’m not going to do that, of course.”
Got that? Mitt Romney, who is feverishly wooing the support of fiscal conservatives, conceded an obvious truth: that government spending stokes economic growth, in a broadly equitable fashion.
Mr. Romney’s reply drew no follow-up from Mr. Halperin, the most horse-race-addled and otiose member of our political press corps. But the candidate’s entirely sensible reply laid bare the great lie of the reigning economic consensus on the right. Deficit spending is not some mystically enervating drag on the American economy and, indeed, remains one of the surest stimulus measures on offer for the major slumps in demand and constrictions of credit that have kept growth so anemic over the past four grim years. Battered economies don’t much care where money comes from; money is fungible, as the economists like to say, and so a restorative jolt of the stuff needn’t claim any high-toned pedigree. The cash can be tapped from a federal agency or a drug cartel or a bloated hedge fund—so long as it courses through the weakened channels of commerce. Demonizing government spending during this sort of liquidity crisis is a bit like a hemorrhaging medical patient declining a blood transfusion because the original donor was blond.
And yet, that counter-empirical reflex continues to be the central creed of austerity-minded conservatives. For ready confirmation, look no further than the wearily familiar spectacle of the GOP House leadership threatening to revive the lunatic 2011 showdown over the debt ceiling—or the still more baroque and pointless showdown ahead over the extension of the Bush tax cuts for the wealthy.
All you really need to grasp the bankrupt logic behind the tax-slashing austerity program is a basic acquaintance with the modern history of the upper-bracket tax cut. The supply-side faithful routinely disclaim any fallout from tax cuts aimed at the upper brackets by citing a bastardized brand of Keynesianism that dare not speak its name (while, of course, also deriding anyone pointing out the innate unfairness of such giveaways as an un-American “class warrior”). A rising tide lifts all boats, the standard shibboleth here goes; create incentives for the heroic entrepreneurs who throng to the investing class, and presto: a broad-based prosperity inevitably ensues.
Even more inconveniently for the supply-siders, the modern history of the upper-class tax cut is a parable of Keynesian deficit spending run amok. When Ronald Reagan pushed through his first battery of upper-bracket tax cuts in 1981, they blew an entirely predictable gaping hole into the heart of the federal budget. So in the following year, the patron saint of the modern tax-cutting right signed legislation to raise taxes once more, so as to keep pumping money through the spiraling U.S. defense budget. Then he did it again.
The “Reagan revolution” in economic affairs represented, in pure structural terms, no kind of revolution at all: It was the classic Keynesian formula of raising marginal tax rates while sending massive outflows of government cash into the broader economy through the defense budget. Liberals during the Reagan years decried the expansion of the Cold War military, but the money didn’t care what agenda it was serving—and the on-again, off-again tax-slashing profile of the Reagan Treasury Department mattered even less.
Nevertheless, at nearly every Republican primary debate during this bleak primary season, Newt Gingrich would wind up his standard refrain of Reagan adoration, insisting that the Gipper had midwifed an unparalleled run of prosperity due to his heroic record of slashing away at taxes. All the other econo-cons on the debate stage would echo the same stock untruth—or else nod sagely in assent, together with assembled press worthies presiding over the proceedings, mini-Halperins all.
And the ironies don’t stop there. As Matt Yglesias and other commentators have noted, the economic advisers of the George W. Bush White House made the pitch for their 2001 package of upper-bracket tax cuts in explicitly Keynesian terms. Once the asset bubble of the tech sector met its long-overdue doom in 2001, the Bush team explained that their tax giveaways were the swiftest corrective on offer for the slumping investment economy—in other words, they were selling a structural formula of deficit spending as a way of tacking through a business downturn, in exactly the same terms that defenders of the 2009 Obama stimulus plan did. The Keynesian profile of the Bush program was forcefully multiplied with the addition of two wars on the federal budget line—along with the massive entitlement expansion known as the Medicare Part D plan.
Under the cover of its opportunistic exploitation of the Nasdaq collapse, the Bush White House was actually enacting a dramatic upward redistribution of wealth over the course of a decade—a program that, so far, the Obama White House has carelessly rubber-stamped for its own short-term political gain. Thus the cottage industry of Keynesian denialism has become a curious D.C.-based asset bubble of its own. Only this bubble seems likely to expand indefinitely, unless our myopic leadership class somehow summons the nerve to raise marginal tax rates.