Supply-Spend Economics - The American Spectator | USA News and Politics
Supply-Spend Economics

With the passage of the Medicare Prescription Drug Bill and the imposition of new quotas on apparel and textile imports from China (a.k.a. “the bra tax”), it is time for supply-siders to come to grips with the following fact: We are going to have an uneasy relationship with the Bush Administration for as long as it is in power. Yes, Bush often embraces supply-side principles. Yet at crucial moments they lose out to political considerations.

The problem for supply-siders is that those considerations are weighty ones. Bush is building a very broad-based coalition that could keep the GOP the dominant party for years to come. In a meeting I attended last summer, Grover Norquist, head of Americans for Tax Reform, mentioned that he had never seen a Republican administration (not Nixon, and not even Reagan) as concerned about the well-being of the party as the Bush Administration. And there is a case to be made that some of Bush’s decisions that drive us supply-siders bonkers have considerable political benefit, at least in the short-term.

The most obvious example of this is free trade. Bush imposed steel tariffs last year to win support for Republican candidates in steel-industry states like Pennsylvania. And it is hard to argue with success: Although the move did not win Bush any hoped-for union endorsements, election night 2002 was a big success for the GOP. Now, with the bra tax, the administration is hoping to do the same thing for Republicans in Senate races in textile manufacturing states like North and South Carolina next year.

Another such example of supply-side abandonment is government spending, encapsulated by the recent passage of the mammoth Medicare Prescription Drug Bill. The political payoff from this entitlement beast appears to be substantial. The American Association of Retired Persons endorsed the bill, and judging by the Democrats’ apoplectic reaction, it is a big coup for Bush. As a result, Bush may very likely expand the GOP coalition to include more seniors.

And there are some supply-side silver linings. The Medicare bill includes an option for broad-based Medical Savings Accounts, a health-care reform long championed by free-market advocates. Rep. Pat Toomey (R-Penn.) argued recently in The American Spectator that the steel tariffs were necessary to win passage of Fast Track Authority. Indeed, FTA squeaked through the House by only one vote. As a direct result, we now have new free-trade agreements with Singapore and Chile, with more such agreements on the way.

The problem for supply-siders is that those silver linings are part of some mammoth big-government clouds. For one the Republican Party is quickly becoming the party of big government. With the possible exception of defense, spending by any measure is out of control. Recently Rep. John Boehner (R-Ohio) tried to defend this development:

Even though we share many ideological similarities, Republicans are not libertarians. Libertarians are generally more hostile to government involvement of any kind on any level; Republicans share this antipathy to the extent that wherever and whenever possible, power (wrongly usurped in the first place by Democratic leaders) should be devolved from the federal government to the hands of states and localities.

But Republicans also are far from being purely conservative. A conservative would like to see the government shrink; a Republican does too, but — in acknowledging political realities (a new defensive posture after September 11th for one) and the multitude of stakeholders in government after years of liberal control — has often had to settle for simply slowing its rate of growth. Republicans have accepted such realities as the burdens of majority governance.

Permit me to translate: “We’ve become fat and happy the longer we’ve been in power. Pass the beer and cheese, and get me another pillow!”

True, this development is not entirely Bush’s fault. But the President provides leadership, and Bush’s leadership on spending restraint has been non-existent. He has vetoed no appropriations bill, and has actually encouraged profligacy by his eagerness to sign budget busters like the Medicare Bill, Farm Bill, and Education Bill. Unless Bush does something to right the course, the GOP will become what it fought against only ten years ago.

More troubling is that the increase in government spending may also endanger the biggest supply-side triumph under this administration, namely the Bush tax cuts. Consider that when Bill Clinton entered office, government spending as a percentage of Gross Domestic Product was almost 20%. When he left office, it was 17.2%. Regardless of whether you think credit should go to Clinton or the GOP Congress, this surely played a part in the 1990s boom. As government’s share of GDP shrank, there were more resources available to the private sector. Thus, it is possible that the current spending spree could exert a negative impact on the economy. If it does, the “Bush Boom” that many conservative commentators are predicting may not transpire. Should that happen you can bet it won’t be government spending that gets the blame. Rather, it will be the deficit. Increased concern over the deficit will mean more pressure to roll back the Bush tax cuts.

Finally, the coalition Bush is trying to create may threaten one huge policy initiative supply-siders favor — Social Security reform. Introducing personal retirement accounts will probably require the acquiescence of many senior citizens. If the seniors in the Bush coalition balk, the chances for meaningful Social Security reform could drop precipitously.

So what’s a supply-sider to do? Other than rail on the pages of this and other conservative publications, not much. Supply-siders could threaten to defect from the Republican Party, but defect to what? All of the Democrats in the race for the presidential nomination want to increase the top marginal income-tax rate. The frontrunners are protectionist Richard Gephardt and tax-and-spend Howard Dean. The fact is we’re stuck until the GOP primaries of 2008.

Recently Larry Kudlow opined, “Hopefully, in Bush’s second term, we’ll see some serious budget restraint and a better trade policy.” I wouldn’t hold my breath.

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