Tuesday, 6 July 2010

On the polical utility of debt and deficit

Debt and austerity seem to be the flavour of the month, at least among those getting to giving the cuts, thought it remains to be seen how long the enthusiasm will last among those receiving them.

i've just finished reading Martin Walker's biography of Bill Clinton, The President We Deserve. Early on, Walker notes that the fiscally constrained nature of the Clinton presidency was due to a deliberate - and breathtakingly cynical - strategy originating in the 1980s, when Reagan and his supply side wreckers went on their spree.

their economic decisions weren't driven by ‘positive’ ideological vision, that is a genuine – but deluded – conviction that supply side economics worked. Foisting a massive peace time debt on the public was a cynical, ‘negative’ ploy to stymie any plans the Democrats had:

Clinton came to office in 1993 to be caught by two deep fiscal traps, which made it almost impossible to finance the reform measures on which he had campaigned. The first, and underlying cause of his difficulties, had been set twelve years earlier, in the first year of the Reagan administration. Reagan’s budget director, David Stockman, set out deliberately to destroy the welfare state by plunging the budget into fiscal crisis. The strategy was for the White House to cut taxes, and if the Democratic Congress would not then cut spending, the result would be a mounting deficit that would in the long run constrain any more growth in public spending and eventually force spending cuts. Stockman was extraordinarily frank about this: “The success of the Reagan revolution depended upon the willingness of the politicians to turn against their own handiwork – the bloated budget of the American welfare state. Why would they have to do this? because they had to! In the final analysis, I had made fiscal necessity the mother of political invention.

“It worked. In 1980, when Reagan was elected, the national debt was just over $1000 billion. Twelve years later, when Clinton entered the White House, it had ballooned to over $4000 billion, a debt on which interest had to be paid. In Clinton’s 1996 budget, $257 billion was allocated for interest, rather more than the entire U.S. defence budget of $247 billion for the year. The debt burden and the annual deficit had become precisely the fiscal restraint Stockman had planned, a straitjacket into which Clinton’s reform ambitions had to fit. (1)

Sorry if I’m teaching y’all to suck eggs here, but this was news to me. Before, I’d thought that the Reagan administration were just financial imbeciles who genuinely believed that cutting taxes while spunking money on Tanks In Space would somehow lead to everyone becoming billionaires. I didn’t realize it was actually a brilliant act of political castration, effectively neutering any future government’s reform agenda and forcing every president thereafter to become an administration, scraping up money to service Reagan’s debt, rather than actually using the power of the state to actually help people.

Compared to this sort of long sighted cunning, the current moves to hack up the institutions of social democracy in the name of austerity, seem almost naive.

1 - The President We Deserve, by Martin Walker. Published by Crown Publishers, Inc., New York, 1996.

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