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Economics Retread – Why Starving The Beast Never Works!

[Note – Some of this post is rehash from another I wrote a few weeks ago. But it’s my blog! I can do what I want!]

Bruce Bartlett wrote a post today describing his amazement that Republicans are still running with the “Starve The Beast” theory of balanced budgets. He says:

This is a view I once held back in the 1970s. Just cut taxes, I thought, and pressure to balance the budget will manifest itself in the form of spending cuts that will reduce the size of government and increase growth, which would further reduce the size of government as a share of GDP.

The problem is that this idea presupposed that there was significant support in Congress to reduce the deficit.

Bingo! There’s not. And even if there were, they would never be able to agree on which items to cut, so, at best, you have a stalemate, which means nothing gets done.

E. D. Kain at True / Slant took Andrew Sullivan to task for criticizing then candidate Scott Brown, and the budgetary concept of “Starving The Beast” :

Sullivan objects to calls for tax cuts because that will, essentially, starve the beast, leading to “massive cuts in Medicare, Medicaid, and defense.” That this is not stated explicitly in Brown’s op-ed is immaterial. Republicans have long believed that cutting taxes will lead to cutting spending. What they need to do now is elect fiscal conservatives instead of people like George W. Bush. These cuts, after all, will be necessary unless we decide to shift course and adopt a social democratic model which I’m not sure the U.S. is ready to do at this point in history.

Moreover, judging the present policy positions of Republicans based on the poor fiscal record of George W. Bush is an odd approach. Few Republicans will tell you that they are proud of the spending record during the eight years of the Bush administration. It seems like a strange response to that to say that because of their past failures to rein in spending, any present or future attempts to block Democratic legislative agendas are simply hypocritical. Should they instead eschew fiscal conservatism altogether? I fail to see the logic in this.

Sullivan was right…. Almost. He assumed that the government would  bother to “starve the beast” instead of just lumbering on, consuming even more of everything in its path. As you will see, this is what government actually does.

There is a serious disconnect with Republicans concerning fiscal policy. and government spending, and it’s on display right here. “Republicans have long believed that cutting taxes will lead to cutting spending.” It will???? Is there some sort of placebo effect going on here that I don’t know about? This is magical thinking, much like the belief in homeopathic medicine. President Warren G. Harding cut taxes in 1921, spending increased. JFK cut taxes, and spending increased. Reagan cut taxes, spending increased. Anyone else see a pattern here? Cutting taxes has never led to cuts in spending.

The graph is a comparison of government spending vs. economic growth, measured in Gross Domestic Product. You may look at this chart and see that spending flat lined after each of the tax cuts mentioned above, which should be interpreted as either spending cuts, or at least a freeze in spending. This is not correct.After each tax cut, spending still increased. But the economy grew as fast or even faster than the rate of government spending. And note that when the economy slows and goes into a recessionary period, the spending rate, suppressed in the graph because a the good economy, inevitably catches up. Long term positive economic trends, when they occur, whether caused by tax cuts or not, actually create enormous pressure on legislatures to increase government spending. The money is there and neither Democrats or Republicans have much of an incentive not to spend it. The first round of tax cuts by the Bush administration, designed to give back the surplus created during the Clinton / Gingrich years, was a move in the right direction. Too bad they lost this policy philosophy soon afterwards.

As for the other point by Kain – “Few Republicans will tell you that they are proud of the spending record during the eight years of the Bush administration.“. OK. Fine. So who is calling for a repeal of all the crappy gobs of extra bureaucracy enacted during the horrible Bush administration. Anyone hear Republicans calling for a repeal of the new Medicare-D entitlement? What about the failure that is No Child Left Behind? What about the ever bloated Department of Homeland Security, which, was shown only last month to be ineffective at stopping terrorist threats. The creation of the DHS added tons of ineffective layers of bureaucracy where simply a few changes in the way law enforcement shares data would have done nicely. None of the major conservative mouthpieces are calling for the repeal of any of these Bush era expansions of government; not Limbaugh, not Levin, not Hannity, not Beck – and so far, neither is new conservative Senator Scott Brown.