Occassional reflections of a moderate (hey at least I think I am)

Thursday, June 30, 2005

Do the 2 parties have different views on "the budget"?

Megan McArdle has a very interesting piece on “Making Markets in the political economy”. The piece looks at the current state of the democratic party and its prospects for success. What I took away from her comments can be summed up in two sentences
1. In order to be successful the Dems need to do more than just repackage and remarket their current ideas/assets.
2. Even if marketing were the key, they have the wrong lead marketer (Dean).
To the extent that is what she was saying, I couldn’t agree more. I would quibble with a few minor points that she makes, though the points themselves are not minor.

One thing she notes is
On big questions, such as taxes, the budget, the military, or what have you, the voters have a rough but workable idea of the differences between the two parties, and there is no evidence that there are systematic differences in their misperceptions of their politicians (which is to say, they believe some wrong things about Republicans, but about an equal number of wrong things about Democrats). The problem is not ignorance, or that they've been lied to. It is that they don't like what Democrats stand for.
This may a bit nitpicking but how could you include “budget” in the things that people have a good idea on the differences between the two parties? I suppose if one means “budget priorities” (e.g. Republicans prefer school vouchers, Dems support NEA programs) there is a point. If, however, one means “size of the budget” I do not see how one credibly can argue that the positions of the two parties are distinguishable.

It is true that you could say that (in general) Republicans believe in smaller budgets. I can say I believe in Santa Claus, it doesn’t make it so.

A somewhat related point is that she chides Dean by saying: “Howard Dean, like a lot of my acquaintances, seems to believe that the only reason Republicans keep winning is that people somehow don't understand what they're up to.” Let me first say that I find Dean shrill. Further, I find that many people who support the “people don’t understand” theory come across as paranoid or condescending. That said, when some very influential conservatives support a deceptive (“starve the beast”) approach to shrinking the federal government.

As this Cato Institute editorial (from December 2004) suggests, the “starve the beast” mentality is creating a crisis and “small government rarely does well in a crisis”.

Given the looming budget deficits there are four possible responses:

1. There could be massive spending/benefit cuts for a substantial portion of the population.
2. There could be significant tax increases.
3. There could (continue) to be significant budget deficits.
4. The U.S. could sustain above average growth for an extended period of time (of course, in order for growth to be used to balance the budget, lawmakers still need to exercise restraint on future spending).

I think the size of the tax increase after the crisis created by the “starve the beast” mentality will be strongly correlated with the size of the crisis itself. I suspect that the majority of the burden will be borne by the top income earners.


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