Thursday, August 4, 2011

Debt Ceiling Brinksmanship: Just Another GOP Attempt to “Starve the Beast”

As the debt ceiling fight brought the American economy to the brink of disaster, Beltway pundits increasingly likened the struggle to the classic game of “chicken.” In this game, two players aim their vehicles at one another and drive full speed ahead. The player to chicken out and swerve is the “chicken” and loses. Game theory tells us there are various strategies for winning the contest. One way is to induce the other player to swerve by “credibly committing” to drive straight into the other car, thus forcing the other player to drive off the road. For example, one might rip one’s steering wheel out of its column and chuck it out the window. The other player, seeing this move, has no alternative but to swerve as she knows that the other player cannot “chicken out” and swerve even if he wanted to—he has credibly committed to go for broke.

In the debt ceiling talks, the Democrats were in one car and the GOP leadership (Boehner) in the other, with the Tea Party riding shot-gun. As the two cars sped toward each other, the Tea Party reached over, yanked out Boehner's steering wheel, and hucked it out of the window in plain view of the Democrats in the oncoming car. The Tea Party thus “credibly committed” the GOP to crashing their car straight into the Democrats, leading to a fatal crash of epic proportions if the Democrats failed to do the rational thing and swerve (in this case, back down and concede to 100 percent of GOP demands).

In this way, the GOP leadership effectively used the Tea Party to credibly commit to its position. As a consequence, the Democrats saw no alternative but to swerve (agreeing to trillions in spending cuts) to avert an economic crash of possibly apocalyptic proportions.

Another analog to the debt ceiling crisis is the “madman” strategy of international negotiations. The theory derives from U.S. President Richard Nixon's foreign policy strategy, particularly during the Vietnam War. Nixon wanted to give the North Vietnamese government the impression that he was a madman who, if not appeased through utter capitulation, might go so far as to nuke Vietnam—“he’s just crazy enough to do it.” The idea was to get Ho Chi Minh to capitulate entirely as the only alternative to nuclear annihilation; this was a fairly credible threat given growing doubts about Nixon’s rationality.

Applied to the debt ceiling crisis, Vietnam is the American economy, and the Tea Party the madman who was just crazy enough to nuke our economy unless the North Vietnamese (the Democrats) surrender entirely. Of course, the strategy most familiar with readers is that of good cop/bad cop. Here, Boehner (the good cop) informed the Democrats that they must give in to all the GOP demands or suffer the wrath of the bad cop (Tea Party psychopaths) who couldn’t give a crap about annihilating the American economy (or, even more scarily, are so economically illiterate that they don't believe that the debt ceiling is any big deal).

At question is whether there are any real differences between the GOP “moderates” and the Teapublicans, or whether this is all kabuki theatre aimed at scaring the Democrats. After all, the economic position of the GOP leadership and the Tea Party villagers are broadly aligned—they are following a 30-year-old GOP strategy of “starving the beast” to the letter.

Starving the Beast

According to Wikipedia,"Starving the Beast" is a conservative political strategy “to cut taxes, depriving the government of revenue that enables spending on social programs such as Social Security, Medicare, and Medicaid, in effort to create a fiscal budget crisis that would force the federal government to reduce spending.”

The underlying logic of this strategy was first given voice by Ronald Reagan in the election campaign of 1980 when he said, "John Anderson [the third party candidate in the race] tells us that first we've got to reduce spending before we can reduce taxes. Well, if you've got a kid that's extravagant, you can lecture him all you want to about his extravagance. Or you can cut his allowance and achieve the same end much quicker."

In other words, rather than wait to free up revenue to cut taxes, cut taxes first. With decreased tax revenue, law-makers will have little choice but to cut government spending down the road. Readers will note the striking parallels between the “allowance” analogy and present GOP/Tea Party demands that the government tighten its belt, just as responsible American families must now tighten theirs.

In the 30 years since it was first formulated, Starving the Beast has become a core GOP goal: This might not be obvious from GOP rhetoric and policies, which are mostly centered around tax cuts. It would appear that the GOP simply want tax cuts to put money in the pockets of their wealthy donors. However, Democrats also have wealthy donors they would like to please. Moreover, the rich are fairly indifferent to increasing the top income tax rates by a couple percentage points; this is because most of their income is not in wages but in capital gains, which is taxed at a much lower rate--15 percent). No, the main motivation for cutting taxes and keeping them low is to deprive the government of revenue in order (and this is important) to destroy the American welfare state by cutting entitlement programs that support the poor and middle class.

Upon assuming office, Reagan was as good as his word—he began with a massive tax cut to the top income brackets in 1981, in hopes of forcing Congress to institute cuts to social programs to compensate for lower revenues. In this way, Reagan sought to “cut the allowance” of government, which the GOP believed would translate into cuts in entitlement programs. This helps to resolve the apparent contradiction in Reagan’s tax policies: why, as a dyed-in-the-wool tax cutter, would Reagan ever agree to support an increase in payroll taxes? This apparent inconsistency is explicable if one understands that tax cuts themselves were never Reagan's end goal, the end goal was always ending the American welfare state. If we accept this, it is not at all inconsistent for Reagan to cut taxes on the poor while increasing taxes on the poor and middle class.

Grover Norquist, the infamous anti-tax crusader and head of the Americans for Tax Reform, has become a pivotal figure in the debt ceiling negotiations. Although he succeeded in getting a great many GOP representatives to sign his no tax increase pledge—assisting the Tea Party to toss the steering wheel out the window—tax cuts were never his central goal either. Although his public positions suggest that he is all about lowering taxes, Norquist's fundamental goal is “to cut government in half in twenty-five years, to get it down to the size where we can drown it in the bathtub.” Norquist is, you guessed it, a leading advocate of the “Starve the Beast” strategy, having once observed, “you kill taxes, you kill the government.”

It bears repeating: cutting taxes is not the end goal of today’s GOP—it is simply a means to the end of destroying the social assistance programs that serve as the lifeblood of the poor and lower middle class (disproportionately minorities, women, young people, students—Democratic voters). It is no loony left-wing conspiracy that shrinking the welfare state is about destroying the Democratic Party. Here is Norquist again:

And we've had four more years pass where the age cohort that is most Democratic and most pro-statist, are those people who turned 21 years of age between 1932 and 1952--Great Depression, New Deal, World War II--Social Security, the draft--all that stuff. That age cohort is now between the ages of 70 and 90 years old, and every year 2 million of them die. So 8 million people from that age cohort have passed away since the last election; that means, net, maybe 1 million Democrats have disappeared--and even the Republicans in that age group.

Here is a leading GOP activist fantasizing about the disappearance of millions of Democratic voters.

There is, however, one major problem with the Starve the Beast strategy from the GOP point of view: it doesn’t work. This is because, like all politicians, Republican representatives need to win elections to stay in power, and that is hard to do if you vote to cut the most popular middle-class programs in America. During Bush’s 2005 tour of fake town hall meetings designed to rally public support for Social Security reform, he discovered to his great disappointment that “reforming” (i.e., cutting) Social Security was a non-starter with the American public. Thus, Social Security reform died an early death; he could not even get his own party united behind it once the American public figured out what they were up to (parallels with the Ryan Plan, anyone?). The GOP (like many Democrats) must also keep their campaign donors happy, which means lavish spending on subsidies and tax breaks to Big Energy, Big Agriculture, Big Pharma, Big Health, defense contractors, and so on. These big government programs (entitlement programs and corporate welfare) have to be paid for somehow; in lieu of taxes, we must put it on our national credit card.

This accounts for the massive rise in government deficits beginning in the 1980s with the Reagan administration. If one looks at the record of the past few decades, it is clear that the Republicans like to spend every bit as much as the Democrats, if not more (Dubya’s trillion dollar tax cuts, two wars, and massive prescription drug benefits are excellent cases in point). The principal difference is that Republicans don’t like to pay for their spending binges with higher taxes. This is why recent Republican administrations have run bigger deficits than Democratic administrations—Democrats do a better job of paying for government programs with higher marginal tax rates; Republican administrations simply borrow the difference—calling the lie to their “deficit hawk” posturing. The graph below shows that the last Republican president who balanced the budget was Dwight D. Eisenhower in the 1950s.

The Shock Doctrine and Debt Ceiling Talks

If tax cuts merely lead to more borrowing, how does the GOP get its desired cuts in entitlement programs? Naomi Klein’s The Shock Doctrine suggests an answer. Klein notes that since the public never supports free market reforms that involve cuts to vital public assistance, Milton Friedmanites must take advantage of crises to institute cuts that people would never accept in non-crisis periods. She gives an example of a Republican politician in Louisiana, who said, “We finally cleaned up public housing in New Orleans. We couldn’t do it, but God did.” Shocks such as wars, natural disasters, and economic calamities are now the “preferred method of advancing corporate goals: using moments of collective trauma to engage in radical social and economic engineering” (8).

The needed shocks for unpopular reforms can also be manufactured out of whole cloth, as in the 2011 debt ceiling talks. Analysts have noted that the debt ceiling has been raised 74 times in the past 50 years (it was raised 7 times under George W. Bush alone), with never so much as a friendly debate. The debt ceiling crisis was entirely fabricated by the GOP in order to go after entitlement programs directly, to go for the jugular. And they got what they wanted—massive cuts in government programs (and another tranche of cuts later in the year that will be aimed at entitlement programs rather than defense spending, because defense contractors have lobbyists whereas we only have our paltry votes). In return, the GOP will let the economy live.

Once again, the real aim of GOP cuts is not to reduce the deficit. Neither the GOP nor the Teapublicans are true deficit hawks. A true deficit hawk would aim her sights at corporate tax loopholes, corporate subsidies, and bloated military spending; the GOP has instead taken aim at some of the smallest items in the discretionary budget. Since reclaiming the House after the 2010 elections, GOP representatives have proposed cutting food programs for the poor, nutrition for low-income pregnant mothers, student aid programs, education research, the school lunch program, Head Start, public radio and television such as NPR, subsidies for the arts, jobs training programs, women’s community health centers, and others—these proposals are remarkable not only for their heartlessness (coming in the midst of one of the worst economic periods since the 1930s), but also for the fact that they provide critical support to the poor and working Americans, as well as those in the arts and higher education (disproportionately Democratic voters). Together, all non-defense related discretionary spending makes up only 16 percent of the entire U.S. budget; defense spending makes up nearly half of all discretionary spending. For these so-called budget hawks to leave defense spending entirely alone is either irrational behavior or the good old bait-and-switch we’ve come to associate with the GOP.

What “Starve the Beast” Republican fundamentalists (Ronald Reagan, George W. Bush, Eric Cantor, Paul Ryan, Mitch McConnell, Bill Kristol, Alan Greenspan, Karl Rove, Jon Kyl, Grover Norquist, Dick Armey and other GOP leaders) are really after is dismantling public entitlements altogether. Rather than allowing them to hide behind the lie of “fiscal conservatism,” we should force them to admit their true aims at every turn.