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Our No-Tax-and-Spend President
I'm no economist, but I keep wondering, "Where is Ross Perot when we need him?" The deficit is big, and yet we keep spending while simultaneously cutting taxes. The government tells us that the tax cuts are working. Consumer spending and business investment are up, and jobs may not be far behind. But I have a sneaky suspicion it's really the spending that's doing the trick.
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Keynesian economics, as I understand it, proposes that in down times, what the government should do is "prime the pump." That was the general theory behind the famed WPA program that helped to end the Great Depression. To promote employment, Keynes declared that the government must spend to create jobs, decent-paying ones at that. As folks' incomes improve, so their purchasing increases, creating demand for goods and services, thereby creating more jobs.
SUDDENLY, THE CASH FLOWS. Since the mid-Thirties, this neoclassical view of economics prevailed. That is, until Reagan and now, Bush. It seems to me altogether possible that the tax cuts, based on newfangled, unproven "supply side" economics, do not work -- or do not work fast enough, anyway. So say I'm right, and acknowledge that the Administration is facing an election year: While continuing to pledge allegiance to the tax cuts, it does a quiet about face and begins to spend. Because spending works.
What I began to notice last fall was that programs the feds had planned to cut were suddenly promised bigger budgets. Out of the blue, the National Science Foundation received a 13% increase, extending its largesse to us budding technology companies.
I'm on the board of the Delaware Valley Industrial Resource Center, part of a federally funded network that provides training and support to help small and midsize manufacturers become more efficient and competitive. It went from shaky support, with a threatened two-thirds cut, to being recognized as the key to the preservation and expansion of our manufacturing base. Nor did the spending stop there. After being castigated by conservatives and seeing its budget cut by over 30%, even the National Endowment for the Arts was earmarked for the largest rise in two decades.
COCKTAIL OF CONTRADICTIONS. Brothers and sisters, this is not the "trickle down" of investment from the wealthy using their newly freed-up, formerly taxed dollars to expand the economy. Call it economic stimulus, call it plain old pork, the government's spending is bound to lead to growth and job creation, at least in the short run. The conflict comes from the esoteric mix of lavish spending and equally lavish tax cuts. Tax cuts for the wealthy were definitely not John Maynard Keynes's model. Conversely, to my knowledge, stepped up government spending is not a major feature of supply-side thinking. This is something new and radical, a win-reelection-at--all-costs doctrine.
Trouble is, as Perot so aptly presented, deficit spending can't go on forever. The other night on CNN, I heard political satirist Bill Maher say, "You hear about 'tax and spend', but that's what governments do. What are they supposed to do, hold a bake sale? But what about 'don't tax and spend'?"
Maher went on to remark on the cynicism of a government that saddles the next President -- and the next generation -- with a great big mess to clean up. Reagan proved you can squander our national treasury and still be lionized. Now Bush seems to have taken a page from the master's playbook. Indeed, this President has never met a spending bill he didn't like.
DOO-DOO ECONOMICS. One month after signing the new $400 billion drug bill, it turns out the actual cost will run $134 billion more than promised. Now, the president plans to increase spending on missiles, from $75 billion to more than $90 billion, a 20% increase this year. That's part of a $400 billion-plus defense bill, not including last fall's $87 billion for continuing operations in Iraq and Afghanistan or further appropriations slated for after the November election. He wants $120 million for "healthy marriages," as opposed to the unhealthy kind -- the GOP accuses Democrats of social engineering!
"We are growing the federal budget two or three times as fast as the average family budget," frets Republican John Shadegg, an Arizona Republican, in last week's New York Times. Isn't it ironic that these days it takes a Democratic to balance the budget and impose fiscal probity? In the meantime, many businesses and investors worry that higher interest rates may be just around the corner. That's what happens when the government has to compete with the private sector for money. You don't have to be an economist to know that the government always wins.
By Lisa Bergson
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