Starving the Democrats

The United States’ first Treasury Secretary, Alexander Hamilton said that under the right circumstances a national debt could be a national blessing. At the time, he probably did not have the ‘Starve the Beast’ theory in mind. However, I did when I read columnist/economist Paul Krugman’s piece today in the New York Times. The gist of Krugman’s column is that George Bush’s tax cuts have made it very difficult to reasonably pass any major increases in government spending on health insurance. This has had an effect in limiting what both candidates are promising during this election. Krugman doesn’t mention Bush’s sizable spending increases for wars and prescription drug coverage. But, that’s the other (worse) part of the math for Bush’s “poison pill”.

I am not sure I want to sound cavalier about debt. Ideally, I would favor limited debts to sponsor corresponding long-run projects and larger debts for use in a national emergency. If we were governed by angels or libertarians, the cynical view of roundabout ways of restricting government spending would be ridiculous. However, we are government by politicians with their politically popular ideas. My view is that it is best that it be obvious to politicians (or at least their advisors) and hopefully the public that grand new spending proposals are impractical.

The ‘success story’ for starving the beast is the Reagan presidency. Reagan’s terms saw significant cuts in income taxes and increasing spending on defense. This left his successors, H.W. Bush and Clinton, with quite sizable national debts compared to the historical average. One of the effects of this was that those two presidents were quite constrained on their policy options. Bill Clinton would have needed much larger, and probably politically unpalatable, tax increases in 1993 to pass a national government health insurance bill. So, he ended up pursuing a moderate economic path, even in his first years with sizable Democratic majorities in both houses on Congress. Economically, this turned out quite well in the 1990s. George W. Bush has set the next President up for a similar situation to Reagan’s successors (although without the 1980s boom or the end of history).

Could this lead to the future redemption of the Bush presidency? I think not, he needs Iraq to turn into Germany in five years. But perhaps this is a silver lining. I’d be quite content with President Obama as a Bill Clinton who improves our standing abroad. I would like Democrats who didn't spend money, I would also like Republicans who didn't...

(H.T. Greg Mankiw)