Do you remember, back during the debates over the initial Bush tax cuts, how the Democrats cleverly appropriated conservative lingo to characterize the proposal as a “reckless tax expenditure?” Well, it looks as though President Bush thinks spinabout is fair play. The most recent round of cuts — including the effective evisceration of the distortionary tax on dividends — has been sold as, variously, a “stimulus plan” or a “growth and jobs package.” Now, as libertarian economist extraordinaire Glen Whitman observes, critics are right to call this somewhat disingenuous. The economic benefits of this sort of cut will accrue over the long term; they’re unlikely to do a whole lot to pull the U.S. out of its current economic slump. That doesn’t mean they’re a bad idea, or that they won’t in fact promote growth and job creation over a number of years; it just means that they’re not going to achieve the short term “stimulus” many seem to think it’s geared to deliver.
Arguably, that is just as well. Traditional Keynesian “pump-priming” — the sort of policy that really would deliver a short term boost — is demonstrably not such a hot idea. Like heroin, it’ll give you a wicked macroeconomic buzz, but before too long, the effect wears off, and as market preferences reassert themselves against the artificial rush, you crash. Then you’re off in search of another fix, and the cycle begins again. Yet in rough economic times, political pressure to do something, or at least to appear to do something, is hard to resist. So isn’t it savvy of the administration to have redirected that pressure into support for a policy that’s sound, albeit for very different reasons, rather than getting stuck chasing Keynes’s dragon?
Some on the right think that the apparent success of this bit of rhetorical judo is indeed a reason to crow. After all, as Andrew Sullivan notes, the Democrats now (say they) favor tax cuts too — even if the size and specific form remain matters of debate.
Yet focusing too narrowly on the outcome of this particular battle may obscure the surrender in the broader conceptual war entailed by the administration’s approach. In a piece in England’s Guardian, Victor Keegan is glad that Bush recognizes the need for a Keynesian stimulus, but points out that tax cuts are a misguided way to boost short-term demand. And, within that framework, he’s right enough. That’s the problem. The surprising unanimity that Sullivan notes is not the result of Democratic enthusiasm for tax cuts, but of the fact that the cuts are being defended as a tool for managing the economy. And if things don’t pick up in short order, it will be hard for the administration to muster much principled resistance to the idea of trying some more stimulating stimuli.
Still more unsettling is the possibility that tax policy in particular may come to be seen as just one more macroeconomic tool, to be tinkered with ad-hoc as the business cycle does its “to everything, turn turn turn” bit. Why let Greenspan have all the fun? Instead of raising interest rates to “cool down” an “overheated” economy (I won’t even start on that weird and misguided automotive metaphor) legislators can suckle more vigorously at the boom-time teat and pitch it as a responsible check on “irrational exuberance,” rather than one more layer of cellulite lipo-pumped into the federal bloat. But to paraphrase a friend of mine, tax policy is not a toy. Excessive tinkering destroys the stable expectations that enable the long term planning by investors and entrepreneurs that functioning markets require. Congress, in short, might put someone’s eye out with that thing.
A friend who works as a speechwriter for the White House tells me that they’ve been using the phrase “growth and jobs package” rather than “stimulus” precisely in an attempt to avoid such a rhetorical hijacking. Well, by all accounts, it ain’t working: “stimulus package” is the watchword of the day. Folks on the right who’ve been cheering the tax cuts may want to curb their enthusiasm a bit. The Native Americans who got smallpox infested blankets were probably grateful at first, too — sometimes it pays to look a gift horse in the mouth.