In what I'm sure he considers a masterful performance, Paul Krugman assumes an air of reasonableness while he demolishes strawmen left and right, but mostly right.
By all means, let’s listen to each other more carefully; but what we’ll discover, I fear, is how far apart we are. For the great divide in our politics isn’t really about pragmatic issues, about which policies work best; it’s about differences in those very moral imaginations Mr. Obama urges us to expand, about divergent beliefs over what constitutes justice.
And the real challenge we face is not how to resolve our differences — something that won’t happen any time soon — but how to keep the expression of those differences within bounds.
What are the differences I’m talking about?
One side of American politics considers the modern welfare state — a private-enterprise economy, but one in which society’s winners are taxed to pay for a social safety net — morally superior to the capitalism red in tooth and claw we had before the New Deal. It’s only right, this side believes, for the affluent to help the less fortunate.
Hard to miss which side he's on when he talks about "capitalism red in tooth and claw." It clarifies the moral differences. On his side we have folks who would create that "morally superior" modern welfare state, and on the other. Well, let's see what he has to say about them:
The other side believes that people have a right to keep what they earn, and that taxing them to support others, no matter how needy, amounts to theft. That’s what lies behind the modern right’s fondness for violent rhetoric: many activists on the right really do see taxes and regulation as tyrannical impositions on their liberty.
But just are who those guys on the other side, so stingy, so fond of violent rhetoric? Nobody I know, actually, and I've been to some Tea Parties. No matter to Krugman. He presses on, framing the debate in terms of the eternal struggle of good versus evil. When, he wonders, did Republicans lose their way and turn to the dark side?
This deep divide in American political morality — for that’s what it amounts to — is a relatively recent development. Commentators who pine for the days of civility and bipartisanship are, whether they realize it or not, pining for the days when the Republican Party accepted the legitimacy of the welfare state, and was even willing to contemplate expanding it. As many analysts have noted, the Obama health reform — whose passage was met with vandalism and death threats against members of Congress — was modeled on Republican plans from the 1990s.
I think he's confused. Republicans were busy trying to put some limits on federal spending in the 90s. The most notable health care plan was HillaryCare, and we all know what happened to that. As to the rest of the welfare state, the 90s saw Bill Clinton and the Republican congressional majorities push through reform legislation that dramatically cut the welfare rolls. The left went ballistic at the cruelty of it all. No, the 90s was not the decade when Republicans were into expanding the welfare state.
For that, we have to look to the late 60s, early 70s, and into the Carter administration. By the time of the 1972 presidential election, Democrats and Republicans were coming to be known as Socialist Party A and Socialist Party B, as they strove to out-compassion each other.
The eventuality that logically followed that compassionate lovefest was the election of Jimmie Carter. Carter represented something of a culmination of the American welfare state expansion in the last century. He was all about love and compassion. His big problem was that he came along when the economy was crumbling under the strain of it, and he was hopelessly ilequiped to deal with it. He blamed it all on a malaise in the American people.
It was right then that Republicans sold their souls. To Ronald Reagan. Reagan campaigned, won the presidency, and governed on the promise that lower taxes, increased defense spending, and regulatory overhaul would restore America. His income tax reform included indexing tax rates to inflation. Progressives unsuccessfully opposed all of it, calling it mean spirited, but contrary to all of their predictions Reagan did not lead us to more hardship and deprivation.
On the contrary, inflation came under control. After a spike in unemployment the U.S. economy began what was to become the longest period of economic expansion in history. Welfare rolls shrank as more people found jobs.
The unprecedented growth created a tax base that, much to everyone's amazement, made possible the first balanced federal budget in decades. By that time we were into the Clinton administration, and because the deficit went away during his term progressives credited Clinton and his tax increases. We don't all agree on that point.
Cato's Stephen Moore disagreed in an article published on August 7, 1997 where he wrote,
The galloping economy has played a major role in reducing the deficit by sweeping record levels of tax revenue into the treasury over the past two years. This year, federal revenues are running about $110 billion above those of 1996.
The president most deserving of credit for balancing the budget was not Bill Clinton, but Ronald Reagan.
Reagan's legacy affects us dramatically today in two ways. First, Reagan's anti-Communist foreign policy and his military buildup hastened the disintegration of the Soviet Union. In the past eight years, America's victory in the Cold War generated a half-trillion-dollar peace dividend. That peace dividend grows every year, and it fell like manna from heaven into President Clinton's lap. The budget deficit is falling, not primarily because Clinton raised taxes and not primarily because the congressional Republicans committed themselves to a balanced budget, but because the defense budget is nearly $100 billion lower today than when the Berlin Wall came down.
The second effect of the Reagan years was to launch America into what is now widely regarded as a remarkable 15-year low-inflation, high-employment bull market (the Dow was at 800 in 1982, 8,000 today)--interrupted only mildly in the middle Bush years. These 15 years of prosperity were propelled by Reaganomics: lower tax rates, a long-run decline in inflation and interest rates (which also lowers tax rates), freer international trade and a strong dollar. Even with the anti-supply-side Bush and Clinton tax hikes, the top tax rate today of 40% is far below the towering 70% tax rate that disabled the economy in the 1970s.
This moment is so reminiscent of the Carter years, with progressives squawking about fairness while the economy teeters on the edge of depression. Obama's prescriptions urge us to continue down that path, even as he himself repudiates them, as he did when he reversed himself on extending "the Bush tax cuts." That was a move that Krugman deplored.
By claiming that fiscal and tax policy choices are simply moral issues, Krugman only demonstrates his commitment to partisanship. As an economist he should know that tax policy decisions have consequences. They affect economic growth. Some policies promote it. Others don't. Right now, we desperately need growth. By framing the debate as a discussion of fairness, Krugman reduces it to nothing more than a partisan attack. Nothing new in that.
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