Thursday, May 3, 2012

Right To Left

In the 80s and 90s, put out by a Democratic policy that they derisively referred to as "Tax and Spend," Republican party decided on a tactic that could easily be labeled "Borrow and Spend." To fund the lower taxes of which they were so fond, the Republicans turned, not to lowering government spending, but to borrowing money on international capital markets.

Despite claims that lowering the overall amount of revenue that the Treasury raised from native sources would eventually lead to explosive economic growth and prove that "deficits don't matter," all that happened was that the United States went deeper and deeper into debt. Ronald Reagan put the national debt on everyone's minds back when I was in high school. In fact, we would sometime use the term "the national debt" to refer to some random Very Large Number, if not outright Infinity. For all of the rhetoric about stimulating the overall American economy, Borrow and Spend was really about enhancing the ability of Government to fund Republican priorities, while at the same time avoiding painful cuts that would have riled up the public to vote Democratic. It was, plainly and simply, buying votes with borrowed funds from overseas.

And it never worked as advertised. Not a single study that has looked into it has ever shown that simply cutting taxes spurs enough economic growth to allow for enough extra revenue to pay off the loans taken out. Or, for that matter, even allow the government to break even. Despite Ronald Reagan's claim that lowering taxes on what the modern Republican party likes to term as "job creators" (a.k.a. wealthy people) would spur them to invest more of the money, when investment opportunities were limited, they did what any intelligent person would do: pocket the money.

And now it seems that the political Left in Europe, looking to buy votes with the promise of avoiding painful cutbacks in government spending, have decided on "pro-growth" policies. Otherwise known as Borrow and Spend. And it's easy to see why. Entire industries are built on the willingness of government to spend public funds on private enterprise. Were the United States to cut its defense spending to "merely" a quarter of the world's total, whole corporations would cease to be viable overnight. Congressional delegations, prodded by unemployed citizens missing their old jobs, would be up in arms immediately.

Now, I'm not a ideologue when it comes to the interactions of people and their government. If the public wants to avoid paying the piper now by borrowing there way out of social unrest, so be it. But this euphemism that they've attached to it - "pro-growth policies" - is just that - a euphemism. There will be no magical super-growth that will pay for the interest on the loans. Governments are poor domestic investors because people have a low tolerance for pain when they perceive that relief is no farther away than the stroke of a pen (or a run of the printing press). And so money winds up being funneled into consumption, rather than true investment. And in any system where people are allowed to participate, there will always be a path to elected office that runs through the willingness to tell people that today's bills can be paid for with tomorrow's cash.

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