Posts Tagged ‘Two Santa Claus Theory’

No Exit

Tuesday, October 20th, 2009

One could argue that in theory liberal democracies should exhibit a repeatable pattern in their politics.

Voters elect liberals who promise lots of social programs to improve people’s lives. But these social programs are expensive so they have to raise taxes to pay for them. The public eventually takes the social programs for granted but gets tired of high tax rates. So they elect conservatives who cut taxes and restrain spending on social programs.

But eventually the need for more social programs becomes acute and the liberals are elected again and the cycle begins anew.

In the U.S., this pattern was interrupted by the Reagan revolution and the Two Santa Claus theory—more formally known as supply side economics. Republicans discovered they could stay in power by cutting taxes (Santa 1) and increasing spending (Santa 2). And for 30 years it worked, thanks to the willingness of China, Saudi Arabia, etc. to buy our Treasury bonds. We buy their stuff; they use that money to buy U.S. securities—everybody is happy.

Until, of course, at some point the budget deficit will get out of hand. There is a good deal of debate among economists regarding whether we have reached the point where budget deficits will harm the economy—with interests rates low and no inflation on the horizon it would seem we haven’t reached it yet. (and no, the budget deficit is not the result of Obama’s policies—it is a holdover from the Bush Administration)

But eventually the budget deficit must come down or interest rates and inflation will take its toll.

So what are the options?

We can (a) cut government spending, (b) raise taxes, or (3) hope the rest of the world will continue to finance our deficit indefinitely. I see no evidence that the public is willing to see their taxes increased or their services (along with military expenditures) cut. The Two Santa Theory is now part of the public’s expectations.

That means our fate depends on the rest of the world. If/or when China and other countries decide they have to reinvest their cash in their own economies or conclude that the U.S. is not a safe investment, the dollar will slide and interest rates will skyrocket.

Then the party will be over.

Both Santa’s will be out of a job.

Did I mention today is a glass half empty day?

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Posted in Economics, Future of Liberalism | 1 Comment »

Something for Nothing

Thursday, July 30th, 2009

The big news today was Obama’s slide in the polls. According to Pew, the President’s job approval has gone from 61% expressing approval in June to 54% today. That is a significant slide but given that Obama won the election with 53% of the vote, he is likely shedding voters who were never solid supporters.

Obama’s troubles getting health care through the sausage-making of Congress is likely to blame, largely because the discourse in the media has been about the cost of a plan that would cover everyone and how to pay for it.

For the past 30 years, the middle class has been told that we can have all the government services we need with low taxes. This is the so called “Two Santa Claus Theory” promoted by Republicans as a way to sell supply side economics—promise people what they want but always with low taxes.

So I imagine some people are shocked that expanding health care will cost money.

Another poll to be released soon by CBS/NY Times reports:

“Most Americans continue to want the federal government to focus on reducing the budget deficit rather than spending money to stimulate the national economy… Yet at the same time, most oppose some proposed solution for decreasing it.”

“Fifty-six percent of respondents said that they were not willing to pay more in taxes in order to reduce the deficit, and nearly as many said they were not willing for the government to provide fewer services in areas such as health care, education and defense spending.”

No one who is interested in solving problems could maintain public support when the public is so clueless.

As Dday writes at Hullabaloo:

America elected a Democrat because they didn’t like George Bush. But they didn’t elect a liberal ideology, even if they may agree with it on many points, because a liberal ideology wasn’t on offer. Nobody in the Democratic Party has pushed back against the Two Santa Claus theory, or offered up a competing theory of their own, in the thirty-plus years since it was invented. Obama spent the first few months, when he had a honeymoon and his approval ratings were high, assuring everyone that 95% of Americans will see a tax cut, that he was pragmatic and will only go with “what works,” and so on. And so when you get to an issue like health care, which does have moral overtones, which does speak to the fundamental rights of a society to ensure care for their sick and bleeding, there’s no ideological foundation to fall back upon, no belief that America is worth paying for and those who use the commons to a disproportionate degree need to give a little bit to maintain the societal fabric. […]

Nobody has fought the dominant wisdom, inside the Beltway and even in the country, and stated plainly that conservatives have lied to the country about economic issues for 30-plus years. The epic collapse of the economy under the Bush Administration provided an opportunity that nobody took.

Unless and until we start challenging conservative ideology and not conservative candidates, we will always have trouble making major changes because the public has swallowed a notion of government that makes no logical or coherent sense.

Well said.

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Posted in Future of Liberalism, Politics | No Comments »