Monday, August 1, 2011

No, Starve the Beast Didn't Win

I strongly disagree with one strand of the post-deal analysis: that current low taxes were a key motivating force.

Adam Serwer thinks that the debt limit deal shows that a long-term conservative strategy paid off:
The debt ceiling deal reached yesterday can only be described as total victory for the conservative strategy of “starving the beast,” i.e., depriving the government of tax revenues to force cuts in spending.
Ezra Klein said something similar over the weekend:
Republicans can’t necessarily sell the country on big cuts in federal programs, but they can make them necessary. All they need to do is hold the line aganst taxes, allow deficits will continue to mount, and then use forcing events like the debt ceiling or the budget to demand huge spending cuts. A world in which the two parties can’t agree on tax increases but can agree on spending cuts is one in which the government eventually shrinks dramatically. Republicans understand this. Do Democrats?
I strongly disagree.

Imagine that instead of the debt exploding following tax cuts and increased spending, Republicans had won a landslide after several years of tax increases and spending restraint. Oh, wait -- we don't have to imagine it; that's exactly what happened in 1994. And yet, in that atmosphere, Republicans ran against runaway spending (just as they did in 2010) and, when elected, promptly attempted to slash spending, just as they did in 2011.

I think that Bruce Bartlett continues to be right about this: starve the beast just doesn't work. The logic of why it doesn't work is that once government spending is decoupled from government revenues (which starve the beast does deliberately, assuming that in the long run there will be a spending-cuts payoff), there is no longer much reason to oppose spending, because it's in effect free. A PAYGO approach, on the other hand, by insisting that every spending increase (or tax cut) be fully paid for within the budget, works just fine.

Of course, that doesn't mean that starve the best makes it impossible to cut spending. All the current deal shows is that when a party wins a landslide election running on spending cuts and then pushes hard to get them, they'll succeed. But in my view, and certainly based on the 1994-1996 experience, there's basically zero relationship between that and current spending and deficit levels. What does matter a lot is whether the GOP is in a slashing mood or not, but that appears driven by political context, not the fiscal outlook.


UPDATE: And I had missed it, but the political science literature gives empirical and theoretical support to this view, in the form of an article in the current issue of The Forum by Joseph Daniel Ura and Erica M. Socker. Here's a taste, from the abstract:
The notion of “starving the beast” has been an important justification for fiscal programs emphasizing revenue reductions since the mid-1970s. While the idea of restraining government spending by limiting government revenues has an intuitive appeal, there is convincing evidence the reducing federal tax rates without coordinated reductions in federal spending actually produces long-term growth in spending.

3 comments:

  1. I think your basic premise is wrong here. I think in both cases (1994 and 2010) the Republicans made deficit anxiety a campaign issue, but why was there deficit anxiety? Was it spending that was causing the deficits (based on per-capita growth of government spending, no) or tax cuts (Regan’s in 1994 and W’s in 2010, yes) and a slow economy (yes in both cases)?
    In the end, though, it seems that the real reason behind deficit anxiety is that the Republicans are able to get the Washington Press Establishment to focus on the deficit only when it is in Republican interests to do so. In both cases this was when there was a Democratic President that these became issues. I don’t remember a lot of worry about the deficits when W was President even though we faced the same long term growth in health care cost that we do now.

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  2. Yep. Recent decades suggest the ideal formula for spending restraint is a split in control between the White House and House of Representatives, and more specifically a Democrat in the White House and a GOP House.

    It seems we are on the road to proving that once again, although it remains to be seen (right now Obama is doing a pretty good job defending stimulative levels of spending from meaningful cuts in the short term, in exchange for promises of spending cuts in the future. If all that comes to pass, then the recent history will be repeated).

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  3. I agree with anonymous. I wouldn't argue that this is necessarily an evil, long-term master plan, but, in both cases you have a similar cycle: 1) focus on tax cuts and no real efforts at spending cuts during Republican administrations under strong economies, 2) recessions that accelerate the resulting deficit/debt issues, 3) efforts to balance the budget almost entirely through spending cuts in Democratic Administrations. The end result us effectively "starving the beast."

    You're putting a lot of weight on those Bush I tax increases, which were highly unpopular with the base, and look more like a blip if you stretch the story back to Reagan.

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