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“Voodoo Economics, The Next Generation”: The True Believers Show No Sign Of Wavering

Even if Republicans take the Senate this year, gaining control of both houses of Congress, they won’t gain much in conventional terms: They’re already able to block legislation, and they still won’t be able to pass anything over the president’s veto. One thing they will be able to do, however, is impose their will on the Congressional Budget Office, heretofore a nonpartisan referee on policy proposals.

As a result, we may soon find ourselves in deep voodoo.

During his failed bid for the 1980 Republican presidential nomination George H. W. Bush famously described Ronald Reagan’s “supply side” doctrine — the claim that cutting taxes on high incomes would lead to spectacular economic growth, so that tax cuts would pay for themselves — as “voodoo economic policy.” Bush was right. Even the rapid recovery from the 1981-82 recession was driven by interest-rate cuts, not tax cuts. Still, for a time the voodoo faithful claimed vindication.

The 1990s, however, were bad news for voodoo. Conservatives confidently predicted economic disaster after Bill Clinton’s 1993 tax hike. What happened instead was a boom that surpassed the Reagan expansion in every dimension: G.D.P., jobs, wages and family incomes.

And while there was never any admission by the usual suspects that their god had failed, it’s noteworthy that the Bush II administration — never shy about selling its policies on false pretenses — didn’t try to justify its tax cuts with extravagant claims about their economic payoff. George W. Bush’s economists didn’t believe in supply-side hype, and more important, his political handlers believed that such hype would play badly with the public. And we should also note that the Bush-era Congressional Budget Office behaved well, sticking to its nonpartisan mandate.

But now it looks as if voodoo is making a comeback. At the state level, Republican governors — and Gov. Sam Brownback of Kansas, in particular — have been going all in on tax cuts despite troubled budgets, with confident assertions that growth will solve all problems. It’s not happening, and in Kansas a rebellion by moderates may deliver the state to Democrats. But the true believers show no sign of wavering.

Meanwhile, in Congress Paul Ryan, the chairman of the House Budget Committee, is dropping broad hints that after the election he and his colleagues will do what the Bushies never did, try to push the budget office into adopting “dynamic scoring,” that is, assuming a big economic payoff from tax cuts.

So why is this happening now? It’s not because voodoo economics has become any more credible. True, recovery from the 2007-9 recession has been sluggish, but it has actually been a bit faster than the typical recovery from financial crisis, despite unprecedented cuts in government spending and employment. In fact, the recovery in private-sector employment has been faster than it was during the “Bush boom” last decade. At the same time, researchers at the International Monetary Fund, surveying cross-country evidence, have found that redistribution of income from the affluent to the poor, which conservatives insist kills growth, actually seems to boost economies.

But facts won’t stop the voodoo comeback, for two main reasons.

First, voodoo economics has dominated the conservative movement for so long that it has become an inward-looking cult, whose members know what they know and are impervious to contrary evidence. Fifteen years ago leading Republicans may have been aware that the Clinton boom posed a problem for their ideology. Today someone like Senator Rand Paul can say: “When is the last time in our country we created millions of jobs? It was under Ronald Reagan.” Clinton who?

Second, the nature of the budget debate means that Republican leaders need to believe in the ways of magic. For years people like Mr. Ryan have posed as champions of fiscal discipline even while advocating huge tax cuts for wealthy individuals and corporations. They have also called for savage cuts in aid to the poor, but these have never been big enough to offset the revenue loss. So how can they make things add up?

Well, for years they have relied on magic asterisks — claims that they will make up for lost revenue by closing loopholes and slashing spending, details to follow. But this dodge has been losing effectiveness as the years go by and the specifics keep not coming. Inevitably, then, they’re feeling the pull of that old black magic — and if they take the Senate, they’ll be able to infuse voodoo into supposedly neutral analysis.

Would they actually do it? It would destroy the credibility of a very important institution, one that has served the country well. But have you seen any evidence that the modern conservative movement cares about such things?

 

By: Paul Krugman, Op-Ed Columnist, The New York Times, October 5, 2014

October 6, 2014 Posted by | Congressional Budget Office, Conservatives, Federal Budget | , , , , , , , | Leave a comment

“Self-Serving And Misguided”: Conservatives Want To Add Fantasy Thinking To The Budget

In yet another seemingly boring yet dramatic consequence of the midterm elections, Republicans and even some conservative Democrats are keen on adding “dynamic scoring” to the future budgeting process.

Top Republicans, eyeing full control of Congress next year, are considering changing the rules of the budget process so as to make tax cuts appear less harmful to the deficit.

They want to adopt a method called “dynamic scoring,” popular among conservatives since the 1970s, which scores budgets under the controversial assumption that tax cuts generate economic growth and make up for lost revenue — something critics have likened to “fairy dust.” The nonpartisan Congressional Budget Office, the official scorekeeper, does not use the method, but Republicans, and even some conservative Democrats, want it to.

“In practice, dynamic scoring is just another way for Republicans to enact tax cuts and block tax increases,” economist Bruce Bartlett argued in the New York Times in 2013. “It is not about honest revenue-estimating; it’s about using smoke and mirrors to institutionalize Republican ideology into the budget process.”

Of course, tax cuts do not, in fact, generate revenue. Tax cuts almost invariably cost revenue. The fantasy that tax cuts increase revenue is based on a back-of-a-napkin gimmick called the Laffer Curve, which states that at a certain point of unreasonably high taxes, cutting taxes will generate more revenue due to higher growth. The sleight of hand, of course, is in the inflection point of the curve. The tax rate would have to be ludicrously high for tax cuts to have enough of a stimulative effect to generate enough growth actually increase government revenue. We don’t even have to speculate about whether we’re anywhere close to that inflection point in the United States: the example of other social democracies demonstrates that higher rates do lead to higher government revenues, and the experience of the budget-busting Bush tax cuts demonstrates the inverse.

Conservatives have the problem that reality continues to be punishing to their worldview. Abstinence education doesn’t prevent teen pregnancy; tax cuts don’t generate revenue; climate change is real; supply-side economics doesn’t create sustainable growth; etc.

Their usual answer to be battered by the way the world actually works, is to spend oodles of money telling voters convenient fantasies. Dynamic scoring is just another way of inserting their self-serving and misguided wishful thinking into the reality-based budget system.

 

By: David Atkins, Washington Monthly Political Animal, October 4, 2014

October 5, 2014 Posted by | Budget, Conservatives | , , , , , | Leave a comment

   

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