Two competing narratives appear to be making the rounds these days. The first is the saga of The Failed Salesman, in which Barack Obama -- a kind of 21st century Willy Loman -- crashes and burns in the wreckage his dreams inspired. The second is a fourth installment of Back to the Future, in which the Republican Party dusts off its political flux capacitor, rides into Washington, takes back Congress, builds a national monument to Arthur Laffer and rewrites history. The first narrative leaves Democrats depressed; the second leaves Republicans energized.
Those who favour either narrative should read The Political Genius of Supply Side Economics, by Martin Wolf, which appeared last Sunday in The Financial Times. "To understand modern Republican thinking on fiscal policy," Wolf wrote
we need to go back to perhaps the most politically brilliant (albeit economically unconvincing) idea in the history of fiscal policy: "supply-side economics." Supply-side economics liberated conservatives from any need to insist on fiscal rectitude and balanced budgets, because incentive effects would generate new activity and so higher revenue.
The political genius of this idea is evident. Supply-side economics transformed Republicans from a minority party into a majority party. It allowed them to promise lower taxes, lower deficits, and, in effect, unchanged spending. Why should people not like this combination? Who does not like a free lunch?
The problem, of course, is that Americans have been running up a tab at the cafeteria for thirty years. And Mr. Obama has been stuck with the bill. In an era of low interest rates, he has tried to consolidate the debt -- and included the cost of two wars in the total. Faced for the first time in thirty years with real numbers, Americans are scared; and they blame Obama for building the mountain they must now climb.
But what is truly ironic, Wolf writes, is that if Republicans regain power, they will build a higher mountain:
This is extraordinarily dangerous. The danger does not arise from the fiscal deficits of today, but to the attitudes to fiscal policy, over the long run, of one of the two main parties. Those radical conservatives (a small minority, I hope) who want to destroy the credit of the U.S. federal government may well succeed. If so, that would be the end of the U.S. era of global dominance. The destruction of fiscal credibility could be the outcome of the policies of the party that considers itself the most patriotic.
Wolf reminds his readers that "conservative" in Britain means something very different than it does in the United States. As E.J. Dionne recently noted, David Cameron -- the new Conservative Prime Minister of the United Kingdom -- has increased the Value Added Tax from 17.5% to 20%. And Paul Krugman, who has criticized the president's economic policy as being too little too late, warned his readers last Thursday that "Mr. Obama may not be the politician of their dreams, but his enemies are definitely the stuff of their nightmares."
The first three installments of Back to the Future were highly entertaining and made a fortune at the box office. The fourth installment would bomb. More importantly, it would bankrupt the country.
This entry is cross posted at The Moderate Voice.