Do Do That Voodoo That You Do So Well

November 12, 2016
Posted by Jay Livingston

Economist Justin Wolfers tweeted yesterday.

By “economic & fiscal conservatism,” he’s referring to the Republicans’ often-voiced concern about The Deficit.  As I said in this post  three days ago, when Republicans are in power and want to spend a lot more than they take in, their “deficit scolds” stop scolding.*

The deficit data from the Federal Reserve (here) shows this pattern. The graph below charts the ratio of surplus or deficit to GDP.  In years where the government had a surplus, the line goes above the 0-point. The farther below the line, the greater the deficit relative to GDP. (The coloring and text identifying the presidents and their party are my own addition.)

(Click on the graph for a slightly larger view.)

Compare the first and last years of each administration. In all cases, deficit-to-GDP  under Democrats was less when they left office than when they entered. (For Carter, the difference is too small to see in this graph:  -2.57 in 1977, -2.46 in 1981.) In all Republican administrations, deficit-to-GDP was higher at the end of their terms than at the beginning. Democrats reduce the deficit; Republicans increase it.

The main reason is fairly obvious, though Twitter’s 140-character limit makes the tweet from Wolfers a bit misleading. He refers to “Trump’s tax and spending program.” What he means is “Trump’s less-tax and more-spending program.”  Trump’s people have said that one of their big priorities for the first 100 days is tax cuts. Steven Moore, Trump’s economic advisor, says that these will result in increased revenues. Cut tax rates, and tax revenue will magically increase. Hmmm. Where have we heard this before?

The answer is: Reagan and Bush II. (Bush the first, until Reagan selected him as his running mate, famously referred to this idea as “voodoo economics,” which it was. Costs of the tax cuts were not offset by increased revenue.) Bush II, in his early months in office, seemed to be touting his tax cuts, which of course would benefit mostly the wealthy, as the solution to everything. As Rick Herzberg in The New Yorker said at the time, Bush seems to think that the number one problem facing the country is that rich people don’t have enough money.

The Republicans in 2017 will follow in this tradition – lower taxes, especially for the rich, increased spending, and instead of deficit scolding, a reaffirmation of faith in voodoo economics.

* In the Bush years, some senators who had been elected as Republicans (e.g., Lincoln Chafee and Jim Jeffords) stuck by their deficit guns. Instead, they changed their party affiliation. They were no longer Republicans, leaving the GOP entirely to those whose concern with the deficit was selective and inconsistent (which is a nice way of saying “hypocritical”). 

No comments: