Bartlett, Taxes, Etc.

June 11, 2009

Via NeoMugwump‘s aptly-titled post on the same topic, here’s Bruce Bartlett on taxation:

I think conservatives would better spend their diminished political capital figuring out how to finance the welfare state at the least cost to the economy and individual liberty, rather than fighting a losing battle to slash popular spending programs. But this will require them to accept the necessity of higher revenues.
It is simply unrealistic to think that tax cuts will continue to be a viable political strategy when the budget deficit exceeds $1 trillion, as it will this year. Nor is it realistic to think that taxes can be kept at 19 percent of GDP when spending is projected to grow by about 50 percent of GDP over the next generation, according to both the Congressional Budget Office and the Government Accountability Office. And that’s without any new spending programs being enacted.

In the end, the welfare state is not going away, and it will be paid for one way or another. The sooner conservatives accept that fact, the sooner they will regain political power.

This isn’t just a politically relevant point either. On principle, the first enemy for fiscal conservatives ought to be the deficit, not taxation. This is why I think there’s a strong case to be made that Norway and Canada represent far more viable models for fiscal conservatism than the United States: both have comparatively large social safety nets, but they are by and large paid for. Both regulate their banking system so as to avoid catastrophic bailouts. Perhaps most importantly, both maintain political cultures based around a right-wing aversion to debt, so the issue of a conservative government running up the deficit isn’t really an issue.

I recognize all of this should be old hat to most readers. But I continue harping on it not just because its true but also because I think it lies in the long term interests of the Right to return anti-deficit policy to the center of their thinking.  Though favoring some tax increases will be unpopular with the base, to a nation who’s savings rate just jumped a good four percentage points, that kind of anti-debt policy could prove popular. Moreover, should Republicans commit to actually doing some good old fashioned deficit reduction, it would go a long way to redeeming their profligate spending during the Bush years, and to regaining the moral high ground on the issue. (Which, incidentally, they must regain in order to have any hope at all in this environment; so long as Obama can portray the Right as incapable of making the tough decisions, .)

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While we’re on the topic of sound financial institutions and the role of shame, why not mention Norway?

Norway’s relative frugality stands in stark contrast to Britain, which spent most of its North Sea oil revenue — and more — during the boom years. Government spending rose to 47 percent of G.D.P., from 42 percent in 2003. By comparison, public spending in Norway fell to 40 percent from 48 percent of G.D.P.

“The U.S. and the U.K. have no sense of guilt,” said Anders Aslund, an expert on Scandinavia at the Peterson Institute for International Economics in Washington. “But in Norway, there is instead a sense of virtue. If you are given a lot, you have a responsibility.”

Eirik Wekre, an economist who writes thrillers in his spare time, describes Norwegians’ feelings about debt this way: “We cannot spend this money now; it would be stealing from future generations.”

I remain doubtful that this economic and cultural outlook could ever take off in the United States, at least so long as the coasts remain wedded to the interior. Still, to those who take seriously the idea that pessimism, localism, and patience should be the foundation of a conservative outlook, there’s something to be said for looking at smaller countries like Norway where culture enables a politics of restraint, even if that entails a larger government presence.

John Medaille has a great new post up over at Front Porch Republic about the consequences of indebtedness becoming enshrined in law.  In particular, he points to the SCOTUS decision Marquette National Bank v. First of Omaha Service Corp., passed in 1978, that effectively ended usury laws in the U.S., setting the stage for the negative savings rates, the Financial Crisis, and the growth of a business culture built on nothing but loans:

One question, however, is why we were willing to oblige the bankers by displaying such poor moral character. No doubt the convenience of the credit card was a factor, but there is more to it than that. One reason is that we had to. The shift in the economy from manufacturing to finance meant that workers were no longer able to bargain for wages through unions and other means. Since 1972, the median hourly wage has stagnated. We experienced a very odd phenomenon: productivity exploded, but wages remained the same. Obviously, there was not enough purchasing power to clear the markets. Workers responded in two ways. One was to work more hours and put more family members to work, with a devastating effect on family life. The other was to borrow more. Our sense of well-being in the Sixth Circle was largely built on plastic.

Further, the best and brightest of our students no longer went into engineering or manufacturing, but into finance. We started to lose even the knowledge of how to make things. As Thomas Geoghegen points out, not only did financial companies account for 40% of corporate profits in 2003 (up from 18% in 1988), but this may understate the problem. Many “manufacturing” firms, like GM and GE, actually made their profits from their finance divisions. GM became a company that manufactured cars in order to make loans on them.

To my mind, these problems have to be nestled in the deeper question of how we think about economic growth as growth of GDP. The reason that any of these business models wind up looking plausible is precisely because they seem to increase the size of that single number, though anyone looking at the particulars would recognize that there was in fact little more than paper being pushed around. This is an ideology that has had a long history going back to the birth of econometrics, and it has myriad consequences that I want to write about in future posts, but this may be the biggest one: if we make the measure of paper pushing the measure of the economy, then we will get  an economy of paper pushers, plain and simple. It may take time, but eventually that number will trump all questions of regulation and prudence.

I recognize this has basically all been said before in many places since the inception of this mode of thinking. Yet its one that has been little heard on the Right, particularly of late. This should be precisely the kind of language that conservatives ought to challenge, the simplistic, the universal, the risky, and ultimately hubristic thinking that throws culture, virtue, place, heritage, and meaning to the wind in pursuit of a set of digits.  Is there any better personification of enlightenment excess?  Conservatives willingness to defend this language maybe (maybe) made sense when government waste was the central question. Now, I’m frankly puzzled by it. What we have here is a problem in the private sector, and there are many many conservative things that could be said about it, most of all about the language we use to assess it and the values it promotes. Yet this is the last thing the mainstream right wants to think about: their conservatism has become a rote endorsement for corporate power, rather than a force for limits and humility in both private and public sectors.