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Maybe We Need a Super Democrat?

by Matt Mitchell on November 22, 2011

in Debt

The Super Committee has failed. What now?

As I have said before, it is very difficult to look at the long-run fiscal projections and conclude that the impending debt crisis is anything but a major spending problem. According to the CBO, when my daughter graduates from college, federal revenue will be right at its historical average of 18.4 percent of GDP. At the same time, federal spending will consume more than 35 percent of GDP—more than 15 percentage points above the 20 percent average that has prevailed my entire life.

So the long-run explosion in spending—which is driven almost entirely by entitlements and interest payments—must be arrested. How?

In my view, it takes a Democrat.

Only Nixon could go to China. Only Carter could deregulate. Only Reagan could sign the first arms reduction treaties. Only Clinton could sign welfare reform. Lasting and meaningful reforms often require politicians to cross the ideological divide. Given the partisan divide right now, it is very difficult for me to imagine that any Republican president would be successful in reducing entitlement spending. But a Democrat could do it.

And one piece of evidence for this is a 2004 paper in the Journal of Public Economics by the economist José Tavares. He writes:

In a panel of large fiscal adjustments in OECD countries during the last 40 years, we find evidence that left-wing and right-wing cabinets are partisan: the left tends to reduce the deficit by raising tax revenues while the right relies mostly on spending cuts. Our testable hypothesis is that cabinets can signal commitment by undertaking fiscal adjustments in ways that are not favored by their constituencies. In other words, the left gains credibility when it cuts spending while the right becomes more credible when it increases tax revenues. Probit estimates of the determinants of persistence in fiscal adjustments confirm that spending cuts by the left and tax increases by the right are associated with persistent adjustments.

So if it is spending cuts that we need, then these cuts are likely to be more sustainable (“persistent”) if they are executed by a left-leaning government.

Unfortunately, I don’t see much evidence that President Obama is keen to follow this course. His best shot at it came when his own deficit-reduction panel (the Bowles-Simpson Commission) endorsed a mostly-spending-cuts approach. He ignored them.

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  • Jmusser

    Matt, you may be right but your history is slightly off. Bill Clinton was only able to sign welfare reform because he had a Republican Congress that passed it.  If you look closely, he later repudiated his own signing of it.  During Clinton’s first two years in office, like Obama, he had a heavily Democratic Congress and no effort was made to reform welfare or cut spending.  That happened only after the electoral repudiation of 1994. I simply do not expect Obama to have a Saul-on-the-road-to Damascus conversion. 

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  • Thomas Woods

    Matt, you’re way off. President Obama didn’t embrace Simpson-Bowles, but since then has proposed comparably large-scale deficit reduction plans (in negotiaitons with Speaker Boehner & in his proposal to the select committee) that are even more heavily-tilted toward spending cuts than Simpson-Bowles. He made the task of health care reform much harder by insisting that it be fully paid for & that at least half the offsets needed to be health care spending cuts. He signed off on $900 billion in cuts in the BCA & he’s now threatening a veto to keep the BCA’s sequestration cuts in place, even though they cut deeper into defense than he’d prefer. That may not qualify him as a ‘super-Democrat’ but for the purposes you describe here, he’ll do: he’s the leader of the party & has more than proven his willingness to back large spending cuts.

    What we need is a Republican who can similarly defy his party’s base & make real concessions on taxes. There used to be such Republicans, before the party came to be dominated by extremists. There can’t be at the moment, because the extremists are so thoroughly in control – as i think Speaker Boehner learned in the spring, it’s not a question of the leader being willing to agree to changes that his base won’t like, it’s simply political suicide for anyone else in the party to follow the leader down that road. I don’t know what it’s going to take to unseat the Tea Party / Club for Growth extremists from their hold on the GOP (successive electoral drubbings in 2006 and 2008 only further solidified their control).  And the reality that there’s no clear path to achieve that is the main thing – really, the only thing – that makes me so worried for the future of our country.

    • Matt Mitchell

      Interesting thoughts, Thomas. “He made the task of
      health care reform much harder by insisting that it be fully paid for.” I
      think the conventional wisdom on this is exactly the opposite (and, in my view,
      correct). By finding ways to make it look paid for, he actually eased its
      passage rather than hindered it. Of course, we now know that a lot of these “pay-fors”
      were either not sustainable or not intellectually honest. Think, for example,
      of the now-demised CLASS Program.

      As for whether he has offered bold spending reductions,
      I for one am underwhelmed. Have a look at the spending reductions in the
      sequestration: http://mercatus.org/publication/update-federal-spending-without-sequester-cuts-fy2012-2021.
       

      I do applaud him for threatening to veto any effort to
      disable the triggers.

  • Matt Mitchell

    An
    important lesson in public choice is that policy emerges. It isn’t taken
    straight from the minds of policy makers as they wish it to be. Clinton may or
    may not have wanted to expand economic freedom during his two terms. But the
    fact remains that the policies that emerged from the Clinton years–free trade,
    lower cap gains taxation, limited spending, welfare reform–seem to have enhanced
    measured economic freedom: http://neighborhoodeffects.mercatus.org/2011/09/20/economic-freedom-in-decline/

    I don’t know whether to attribute this to Clinton, Republicans, or divided government (my guess is the last). But I take Tavares’s work to suggest that these freedom-enhancing reforms are likely to “stick” because they are associated with a left-of-center president.

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