Are Republicans the new Confederate Holdouts?

That’s a pretty interesting header for what is essentially a discussion among economics/finance bloggers over the ongoing disconnect between revenues and government spending, isn’t it?  There’s no doubt that Nixon’s southern strategy and Reagan’s appeal to social reactionaries ushered in the current mixture that represents the Republican Party.  This has basically become the new base of the Republican party since establishment Republicans and their business base couldn’t get a critical mass of voters back in the day. We’ve seen it lead to policy measures that would dismantle everything from civil rights to basic collective bargaining and workplace rights recently.

Economist Karl Smith believes that eventually this Republican coalition will fail.  He wrote on this at Modelled Behavior in a post called ‘Starving the Moral Beast’ which is quite worth a read and a discussion. So far, it has elicited responses from Mark Thoma at Economist’s View and Matt Yglesias at Think Progress.

All I keep thinking is the old Keynesian wisdom of  “in the long run, we are all dead”.  So much for any optimism on my part.  Here’s some tidbits from Smith.

If we want to build a model of what the government spends money on we would be best to start this way: ask people what social obligations do they believe “society” has. Look around for the cheapest – though not necessarily most efficient – programs that could credibly – though not necessarily effectively– address those obligations. Sum the cost of those programs. That will be government spending.

Contrary to Jonah Goldberg and others who see Canada and the United States as examples of two clashing ideologies, they are actually examples of two different ethic distributions.  The United States is not Canada because there is ethnic strife between Southern Blacks and Southern Whites. That strife reduces the sense of moral obligation on the part of the white majority and so reduces government spending.

I want to be very clear that I don’t say this to paint those against social spending as racists. From where I sit I am betting that most of the intellectuals lined up against expanding the welfare state are naively unaware that their support rests upon racial strife. Otherwise they would realize that as America integrates they are doomed. They are fighting as if they believe they have a chance of winning. Given the strong secular trend in racial harmony, they do not.

I point this out also to show why the major Republican strategy for limiting government was doomed from the start and why I am also not particularly worried about Americas fiscal future per se.

Again, Smith argues that the Republicans will be on the losing end of the argument because they are increasingly outnumbered by the very people they want to suppress.  Eventually, they will have to increase taxes and fund the part of the beast they’ve so tried to starve.

In the 1980s some conservatives believed that the might not be able to cut government but they could cut taxes and thereby starve the beast. Rising deficits would force the hand of future governments. Spending would have to be cut in order to bring the budget into balance.

Much of the handwringing about fiscal irresponsibility is a sense of alarm not only on the right, but throughout much of the political center, that these spending cuts are not actually materializing.

But, by what theory of government did you ever believe they would? Governments don’t look at how much money they have and then decide what they want to buy. They decide what they want to buy and then they look for ways to find the revenue.

Divorcing the two – through sustained deficits – was only going to lead to ever increasing levels of debt. This is what we got. At no point was the beast ever starved. The peace dividend lowered government spending growth somewhat, but that was undone by the war on terror. Otherwise spending hummed along, as it always will, with the government buying things the public thinks it ought to buy.

Yet, if this is causing upset stomachs among many of my fellow bloggers it calms mine. Its quite clear how this will end. Racial strife will continue to abate. The public will coalesce around the welfare state and taxes will be raised to meet the cost.

Ygliesias–from which I borrowed the Jesusland graphic–argues the semantics of the Canada-US sociopolitical distributions.  For some reason, I don’t think either of them have spent much time in central Canada where there are many fairly moderate to conservative folks.

And on both sides of the border there are differences between the big cities and the rural areas. But Québec is quite different from Anglophone Canada and in the USA “the south is different.” The interesting thing is that not only do Québécois people speak French, they also have unusually left-wing views on economic policy. Meanwhile, white southerners have more rightwing views on economic policy than do other North American white Anglophones. If you redrew the borders, you’d get very different political outcomes.

Thoma takes on the crux of the argument which is the essential problem of funding our government.  I’ve always found it odd that Republicans say deficits don’t matter when the spending is for war, tax cuts for business and the wealthy, or distributing grants to religious groups but scream when the spending is used for your basic public goods.  I think he has a good point when he discusses how the relatively different political groups place value on various government activities.  This turns the entire framework into your basic supply/demand model with price sensitivity being determined by the degree to which you value or shun providing revenues or selecting a program.

I agree with a lot of what is said here, but I am not as sure that the decisions about how much to spend and how to pay for it can be separated in this way. What society wants to do — e.g. the social services it believes it should provide — is partly a function of what we collectively think we can afford. Ultimately, I think, just as price is determined by both supply and demand, decisions about the level of government services and how to pay for those services are made jointly, not sequentially. The decisions cannot be completely separated. Part of the worry about health care, for example, and hence part of the opposition is a worry that we cannot afford it.

However, I probably shouldn’t push this too hard, it’s not a pure joint decision either, and for some social obligations have little to do with their cost. In addition, in many cases those who benefit from social programs and those who pay are not the same which sets up a social conflict and a political dynamic that can lead to deficits. But I do think that the costs matter when we make decisions about what services we think government should provide. The big difference across people, I think, is the assessment of the net benefits of some of these programs, and the differences are on both the cost and benefit sides of the equation. For example, the racial divide affects the assessment of benefits, and libertarians see taxes as an assault on liberty and hence very costly.

I still think that the Clinton/Gore administration provided some of the results that many Americans found palatable.  Republicans tend to defund functions they hate, place vapid politicos in charge of the projects they loathe, then point to the miserable results when the inevitable blow ups occur as ‘typical government’.  The hated the lean mean working model of Clinton/Gore.   Think Heckuva -job-Brownie at FEMA compared to the pared down and efficient Clinton/Gore FEMA.   The other main issue that I can see is the large number of Federal contractors that just disrupt the process trying to get no bid contracts to privatize essential government services.  The privatization schemes have cost us dearly at many levels.  I think this war on Public Workers is part of the effort to grab more lucrative government work as much as it is to starve the beast or shrink government.  As every one here as said, we’ve only seen selective ‘shrinking’ .

Having spent my life in that big red blob in the middle, I get a front row seat to some of the craziest of the crazies who scream government overreach or states rights when it affronts their personal practices while applauding government overreach in other things.  Think how many Republicans want to stick their noses squarely in people’s sex lives and health because they value a particular religious belief over science.  I’m less hopeful than Smith that this will all work itself out in the long run because the fault lines seem pretty large from my vantage point.  One of these days the middle class will figure out that they really do get their tax dollars worth.  Now they should just make the corporations and the rich pay for theirs too.

There does seem to be a populist contagion afoot in the world.  A lot of it is push back from the proposed policies that force big changes on either side of the aisle.  There is also this sense that there’s a lot of wealth out there and only a small few seem to be able to grab hold of it.  The democracy bug in the MENA area is as inspiring to me as the Wisconsin, Ohio, and Indiana protests.  Perhaps, the little guys have had enough of being pushed around.

I guess we will see.