Tax Hikes, then Spending Cuts: Not What "Starve the Beast" Predicted
But for decades, much of the American Right boldly proclaimed that this kind of austerity was nigh-impossible. People didn’t say it in those words, of course—prudent people choose their words wisely. Instead, they said that the best way to shrink government was through tax cuts, and that if you ever gave the government more money to spend the politicians would just spend it. The wise goal was to “starve the beast” by cutting taxes at every opportunity so that government spending would shrink. No less a light than Milton Friedman proclaimed that if taxes were cut
“…the resulting deficits will be an effective restraint on the spending propensities of the executive branch and the legislature…”
It’s all common sense, of course: Less money coming in probably means less money going out. But as I’ve said before, common sense is a bad way to learn astronomy so maybe it’s a bad way to learn economics.
Either you run government like a sound business by maximizing revenues and minimizing costs, or you run the government into the ground with lower revenues and higher costs.
The last few decades of U.S. history fit the Ant and the Grasshopper story pretty well: We’ve gone back and forth between Ant (Puritan) and Grasshopper (Partier). Bush 41 and Clinton were Ants, Reagan and Bush 43 were Grasshoppers, and Obama, with the help of John Boehner, appears to be an Ant. During Ant mode, politicians cut (the growth of planned) spending and raise taxes and during Grasshopper mode they give the voters what they want.
There are at least 3 overlapping ways of thinking about Ant and Grasshopper periods:
1. Individual politicians focus on either “responsibility” (Ant) or “voter demands” (Grasshopper).
2. The two major political parties either get trapped in a prisoner’s dilemma by giving their bases the spending hikes and tax cuts they crave (Grasshopper); or the parties find some fix for the dilemma and end up disappointing their bases but shrinking the deficit (Ant).
3. Politicians run the government from the bondholders’ long run point of view (Ant) or from the elderly voters’ short run point of view (Grasshopper).
It’s the late William Niskanen, one of the founders of the Cato Institute, who deserves the credit for attempting to destroy the Starve the Beast ideology among the American Right. He was blunt when he was fired from Ford for complaining about its protectionist policies, he was blunt in disagreeing with his boss, President Reagan, and he was blunt when saying that Starve the Beast probably grew the Beast. If the Ants rise again among the American Right, I hope they adopt the chronic bluntness of their intellectual father.
Coda: This time around, I think Channel #2 was heavily at work. A few weeks ago Speaker Boehner told the President, “You got your tax increase,” so in return the House of Representative was going to cut spending. The House had been somewhat cooperative on the tax hikes, and in return they expected the President to cooperate by not railing too harshly against the sequester. We’ll see if cooperative austerity holds as an equilibrium….