Guest Post by David Stockman
With the benchmark 10-year US Treasury yield recently above 5.0%, it’s time to call a spade a spade when it comes to the fiscal culprits in Washington.
Yes, the Dems are now and always have been fiscal miscreants. More or less, they have functioned since the New Deal and Great Society on the predicate that Washington has first call on the incomes and wealth of the American people; and that federally directed redistribution for the purpose of vote-getting in the guise of social uplift and the public good is absolutely copacetic.
This posture is odious, of course, but at least the Dems tell one truth about their policies. Namely, they happily proclaim government is here to help you and that they are the pro-government party on the banks of the Potomac.
But what is absolutely not copacetic is the modern GOP’s pretense of being the anti-government people’s party. And most especially its consequent claim to being the tribune of relief from Big Government’s crushing tax burdens and its roadblocks to economic growth, jobs, rising incomes and Main Street prosperity.
In the annals of American politics, a bigger lie has never been told. Ever since the presidency of Ronald Reagan, the GOP has claimed to be fighting Big Government by championing “tax cuts” in every way, shape and form on the grounds that cutting revenue and starving the “beast” is the politically smart way to shrink the girth of the state, reduce the Federal deficit, ignite economic growth and jobs and bring prosperity back to Main Street.
Alas, that’s a monumental con job. Once again, Milton Friedman had it right when he said that the true tax rate of Big Government is represented by the spending share of GDP—regardless of whether it is financed by borrowing or taxing.
Unfortunately, however, ever since the GOP succumbed to the snake oil doctrines of Art Laffer in 1981—the notion that tax cuts will both pay for themselves with added growth and ultimately enable the nation to grow its way out of debt—the GOP has been utterly AWOL in the battle against spending.
As shown below, during the 45 years since 1980, the Federal spending share of GDP during GOP Administrations (Reagan, Bush the Elder, Bush the Younger and Trump 45 and 47) has averaged 20.8% of GDP (dotted red line). That amounts to the grand sum of 30 basis points less than the Dem administrations’ average of 21.1% (dotted blue line).
Back in the day, they called that “not a dime’s worth of difference”. And, no, we do not supply magnifying glasses so that the faint difference between the 45-year track records of the two parties shown in the graph below might be more easily detected.
Needless to say, it has not always been this way.
For most of the post-war period before 1980, there was a more significant difference between the spending policies of the GOP and Dems, as shown in the next graph below, which covers the 25 years between 1955 and 1980. During that period, the GOP administration spending share of GDP averaged 80 basis points lower than the Dem administration average, but more importantly, was also far lower as an absolute matter.
To wit, the spending share under Eisenhower, Nixon and Ford averaged 17.5% of GDP versus an average of 20.8% of GDP under GOP administrations after 1980.
That 330 basis points up-shift in the GOP spending posture after 1980 is the real skunk on the woodpile. It essentially means that the post-1980 GOP simply abandoned its core job as the purported Opposition Party in the conduct of American fiscal democracy.
That is to say, once the GOP got hooked on the wrong fiscal variable—tax rates rather than the spending share of GDP—it was all over except the shouting.
Its political energy and capital went into beating the tom-toms on the political hustings for tax cuts. But for crying out loud, tax cuts are always and everywhere a no-brainer sale politically because no one wishes to pay taxes. At the same time, this “easy road taken” posture basically amounted to default when it comes to hard-core battling for entitlement reform, domestic spending cuts and minimalist Warfare State expenditures.
Indeed, it actually got even worse as a matter of political narrative inside the GOP. Namely, after 1980, the neocons led by the insidious Kristol clan—Irving and his son, Bill—became overt and tendentious opponents of the GOP’s core spending cut mission.
Back in the day, in fact, the senior Kristol took to lecturing us about the political stupidity of the GOP’s historic commitment to balanced budget and spending curtailment, labeling it the “root canal theory” of politics.
Leave the massive, GOP-leaning constituencies of old people, veterans and farmers alone, he instructed, and get on with the tax cuts which are both saleable politically and which put money back in people’s pockets as an economic matter.
The problem with the hybrid of supply-side tax-cutting, neocon world policing and full-frontal surrender to the Welfare State spenders was that it never remotely added up.
The GOP’s early 1980s gang of the supply-siders and neocons essentially tried to roll back tax policy to the 1955-1980 status quo ante, while allowing both the Welfare State and the Warfare State to balloon unimpeded along the high spending path that unfolded in Washington after 1980.
Needless to say, there is no rational theory of economics that says you can marry 17% of GDP tax policy with 21% of GDP spending policy on a permanent basis and expect anything other than a long-term debt calamity.
That is, a fiscal breakdown that eventually triggers a debt/interest expense/debt spiral that is mathematically unsustainable.
Editor’s Note: Washington’s debt spiral threatens the dollar—and the purchasing power of your savings. Waiting for a crisis to force your hand could leave you with fewer options.
In his new free special report, How Investors Can Survive—and Profit From—the Coming Dollar Crisis, legendary investor Doug Casey outlines three moves to help protect your wealth and prepare for opportunities a crisis could create—plus one stock he believes investors should consider before the crowd rushes in.
Click here to get your free report.
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Continue reading...
[ H/T The Burning Platform ]
With the benchmark 10-year US Treasury yield recently above 5.0%, it’s time to call a spade a spade when it comes to the fiscal culprits in Washington.
Yes, the Dems are now and always have been fiscal miscreants. More or less, they have functioned since the New Deal and Great Society on the predicate that Washington has first call on the incomes and wealth of the American people; and that federally directed redistribution for the purpose of vote-getting in the guise of social uplift and the public good is absolutely copacetic.
This posture is odious, of course, but at least the Dems tell one truth about their policies. Namely, they happily proclaim government is here to help you and that they are the pro-government party on the banks of the Potomac.
But what is absolutely not copacetic is the modern GOP’s pretense of being the anti-government people’s party. And most especially its consequent claim to being the tribune of relief from Big Government’s crushing tax burdens and its roadblocks to economic growth, jobs, rising incomes and Main Street prosperity.
In the annals of American politics, a bigger lie has never been told. Ever since the presidency of Ronald Reagan, the GOP has claimed to be fighting Big Government by championing “tax cuts” in every way, shape and form on the grounds that cutting revenue and starving the “beast” is the politically smart way to shrink the girth of the state, reduce the Federal deficit, ignite economic growth and jobs and bring prosperity back to Main Street.
Alas, that’s a monumental con job. Once again, Milton Friedman had it right when he said that the true tax rate of Big Government is represented by the spending share of GDP—regardless of whether it is financed by borrowing or taxing.
Unfortunately, however, ever since the GOP succumbed to the snake oil doctrines of Art Laffer in 1981—the notion that tax cuts will both pay for themselves with added growth and ultimately enable the nation to grow its way out of debt—the GOP has been utterly AWOL in the battle against spending.
As shown below, during the 45 years since 1980, the Federal spending share of GDP during GOP Administrations (Reagan, Bush the Elder, Bush the Younger and Trump 45 and 47) has averaged 20.8% of GDP (dotted red line). That amounts to the grand sum of 30 basis points less than the Dem administrations’ average of 21.1% (dotted blue line).
Back in the day, they called that “not a dime’s worth of difference”. And, no, we do not supply magnifying glasses so that the faint difference between the 45-year track records of the two parties shown in the graph below might be more easily detected.
Needless to say, it has not always been this way.
For most of the post-war period before 1980, there was a more significant difference between the spending policies of the GOP and Dems, as shown in the next graph below, which covers the 25 years between 1955 and 1980. During that period, the GOP administration spending share of GDP averaged 80 basis points lower than the Dem administration average, but more importantly, was also far lower as an absolute matter.
To wit, the spending share under Eisenhower, Nixon and Ford averaged 17.5% of GDP versus an average of 20.8% of GDP under GOP administrations after 1980.
That 330 basis points up-shift in the GOP spending posture after 1980 is the real skunk on the woodpile. It essentially means that the post-1980 GOP simply abandoned its core job as the purported Opposition Party in the conduct of American fiscal democracy.
That is to say, once the GOP got hooked on the wrong fiscal variable—tax rates rather than the spending share of GDP—it was all over except the shouting.
Its political energy and capital went into beating the tom-toms on the political hustings for tax cuts. But for crying out loud, tax cuts are always and everywhere a no-brainer sale politically because no one wishes to pay taxes. At the same time, this “easy road taken” posture basically amounted to default when it comes to hard-core battling for entitlement reform, domestic spending cuts and minimalist Warfare State expenditures.
Indeed, it actually got even worse as a matter of political narrative inside the GOP. Namely, after 1980, the neocons led by the insidious Kristol clan—Irving and his son, Bill—became overt and tendentious opponents of the GOP’s core spending cut mission.
Back in the day, in fact, the senior Kristol took to lecturing us about the political stupidity of the GOP’s historic commitment to balanced budget and spending curtailment, labeling it the “root canal theory” of politics.
Leave the massive, GOP-leaning constituencies of old people, veterans and farmers alone, he instructed, and get on with the tax cuts which are both saleable politically and which put money back in people’s pockets as an economic matter.
The problem with the hybrid of supply-side tax-cutting, neocon world policing and full-frontal surrender to the Welfare State spenders was that it never remotely added up.
The GOP’s early 1980s gang of the supply-siders and neocons essentially tried to roll back tax policy to the 1955-1980 status quo ante, while allowing both the Welfare State and the Warfare State to balloon unimpeded along the high spending path that unfolded in Washington after 1980.
Needless to say, there is no rational theory of economics that says you can marry 17% of GDP tax policy with 21% of GDP spending policy on a permanent basis and expect anything other than a long-term debt calamity.
That is, a fiscal breakdown that eventually triggers a debt/interest expense/debt spiral that is mathematically unsustainable.
Editor’s Note: Washington’s debt spiral threatens the dollar—and the purchasing power of your savings. Waiting for a crisis to force your hand could leave you with fewer options.
In his new free special report, How Investors Can Survive—and Profit From—the Coming Dollar Crisis, legendary investor Doug Casey outlines three moves to help protect your wealth and prepare for opportunities a crisis could create—plus one stock he believes investors should consider before the crowd rushes in.
Click here to get your free report.
Tweet
Continue reading...
[ H/T The Burning Platform ]
