Tag Archives: Jos Tavares

Maybe We Need a Super Democrat?

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.