This is not the best time to talk about the economy - there are many other more exciting things to talk about. But, after reading
an op-ed in the New York Times by former Secretary of Treasury Robert Rubin, something occurred to me. In it, he talks about the danger of the growing deficits and what that could mean for American products on the open world market, the dollar, and the American economy in general. What occurred to me is that, to supply-siders, it may be in their best interest to trash the joint before they leave.
Let me offer some brief definitions, so you're hip to what I'm rapping about:
Supply-Side economics: A set of macroeconomic theories in which taxes are cut, and businesses are given government incentives. Supply-siders think this encourages economic growth, that businesses and workers will use the money they save on taxes to "create new businesses and expand old businesses, which in turn will increase productivity, employment, and general well-being." Literally, the supply is increased, and the demand should follow suit.
Keynesianism: An economic theory developed by John Maynard Keynes during the 1930's. Stressing demand, Keynes believed that general trends can overwhelm the behavior of the individual. Rather than an economy based around production and output, Keynes "asserted the importance of the aggregate demand for goods as the driving factor, especially in downturns."
So long story short, supply-siders believe in supply as the driving economic force, Keynesians believe in demand. Specific to government, both believe in attempts to manage the economy - Keynes preached a counter-cyclical method of deficit spending to stop a recession and saving to stop inflation; Supply-siders engage in price control, where supply is increased through tax cuts (and not to mention some deficit spending) which causes prices to fall and competition to rise. Also, to a supply-sider, taxes are always bad because they decrease market demand for goods and slow investment.
I know by now you are asking "Josh, why the hell should I care about this?" That's exactly the point.
Republicans have a long history of cutting taxes and claiming smart economic policy as the driving force. We all remember when Bush sent everyone a check for $300 to stimulate the economy. Bush, as a supply-sider, was only encouraging us to do what we should have been doing in the first place: buying up the overamped supply. Supply-siders believe that demand is just a secondary, reactionary function to supply, and that the status quo is a normalization in which demand is always increasing to meet the ever increasing supply.
A current problem (and one we saw during Reagan's administration) is that taxes are being cut AND more money is being spent by the government. Tax cuts usually fight recession, because they increase demand; deficit spending usually fights recession, too. The demand, theoretically, should be ever spiraling upward in order to meet an increased supply, caused both by tax cuts (here, to business) and government spending.
The problem with huge government deficits is a simple one - eventually a government has so many years in which it has taken in less money than it spent, the investments in the government itself (bonds, t-bills, etc) begin to be devalued. This devalues the dollar. There's also the logistical problem of money supply - the United States government can spend itself into a hole for quite a long while, but eventually you run out of room, as happened to several large countries during the Great Depression. Long before it causes a depression, though, it causes prices to rise against the weakened dollar, which decreases the buying power of most regular citizens. This is the sort of short-term, price-driven inflation that can quickly spiral out of control: the goods don't actually cost anymore to buy than they did six months ago in real money terms, but you're still making the same amount of dollars at Kinko's every week even though they can now buy fewer goods.
If you've come with me this far and haven't switched over to The Onion or gotten a nosebleed, here's my relevant theory: I believe that politicians can use economic theory to serve political ends (which is no great surprise to anyone) but I think Republicans may be doing it at the expense of the economic stability of the United States. Supply-siders have no problem with large deficits as a rule - to them a deficit is part of the fix. The difference between Keynesians and supply-siders is the size and duration of an acceptable deficit, whereas Keynesians believe that the occasional deficit is a healthy part of economic cycle, to supply-siders it is the preferred state. Observe Reagan and his tax cuts and ever-expanding discretionary budget. Sure, money was cheap and you could get a checking account that earned 8% interest, but Clinton had to spend almost his entire first term fixing the budget and heading off imminent disaster. Things would have looked a lot different in Clinton's second term if technology hadn't blown up the way it did.
So, if all of this applies, it is to the Republican advantage to destroy the economy while in control. Many hardcore supply-siders are also social program fiscal conservatives, and
supply-siders have admitted that one of the goals of a large deficit is to force government to reduce itself in size by cutting unnecessary programs.
In other words, "I'm going to create a gap so big, the guy after me will be forced to deal with it for his entire first term, and he won't be able to do so without identifying and protecting programs essential to the operation and function of basic government."
This is politically brilliant and a real service to your party if you manage to pull it off - your agenda and values are projected onto the national structure by default long after your administration was all like "We out." As soon as they lose power, the Neo-GOP can point the finger and say "Look at those tax-and-spend Democrats!" The problem is that people who try to feed their families on $20,000 a year, the people who hit the mall with a vengeance when they get their tax cut checks and are enraged when "the goddamn Democrats raise their taxes," cannot possibly see that a supply-side and deficit-weakened dollar is the culprit of origin.
