Johnathan Chait: Here’s Your Third Response

12 Jun, 2006 by John Hawkins

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From a silly Johnathan Chait column in the LA Times entitled, “Your silence is deafening, conservatives.”

“A FEW WEEKS ago, I wrote a column about a paper that decimated the conservative worldview. The study, by William Niskanen of the Cato Institute, found that the conservative “starve the beast” strategy does not work. Indeed, since 1981, he found that tax cuts tend to produce more spending, while tax hikes produce less.

I wrote that it would be interesting to see how conservatives reacted to having the factual basis for their entire domestic strategy exposed as a fraud. And it is interesting because “starve the beast” is so central to the GOP approach to governing and because the reaction is a case study in how the conservative movement reacts when its views are disproved.

Well, the right has had sufficient time to formulate its response. The results aren’t very impressive.

Out of the reams of conservative commentary published over the last month, I have found exactly two items reacting to Niskanen’s research. Given his paper’s devastating implications, the response is quantitatively — and qualitatively — pathetic.”

Try this response on for size, Johnathan: correlation does not equal causation.

For example, in the summer, you may notice that the sales of snow cones and flip-flops go up considerably. However, that doesn’t mean that there’s some ingredient in snow cones that makes people buy flip flops. In this case, there is a third common cause of both effects: it gets hot in the summer.

On the other hand, you might buy your child 3 different goldfish: one on a Monday, one on a Thursday, and the last on another Monday. If the two goldfish you bought on Monday both die, does that mean Monday is some sort of “death day” for fish? Not at all. It could just be a coincidence. It could just be that the one fish was sick and the other was left in your car too long before it was moved to the tank. There doesn’t necessarily have to be any common cause of both effects.

If you want to look at the last twenty five years and figure out why tax cuts tended to be followed by more spending, it’s not all that tough to do. Reagan cut taxes, was in the middle of a big military build-up, and was working with a spendthrift Democratic Congress. On the other hand, Bush cut taxes, loves to spend money in general, and has had a Congress that feels the same way.

Then there was Bill Clinton. He didn’t cut taxes and Newt Gingrich and company forced spending down. Had Bill Clinton cut taxes, instead of raising them, spending would have still gone down. Today, if we could somehow shift the Congress of 1994 through time and replace the Congress we have currently, the big tax cuts we have would make no difference, spending would still drop.

So, to try to claim that some sort of economic rule that forces spending to go up after tax cuts is nonsensical. As is this suggestion from Chait:

“Make a deal with moderate Democrats to raise taxes and cut spending! That’s exactly what Niskanen found and what the last two decades have shown can succeed. But it’s also an approach the conservative movement fervently rejects. It’s said that the definition of insanity is doing the same thing over and over and expecting a different result. So do conservatives really care about cutting spending, or are they all insane?”

Let’s reverse Chait’s suggestion: if Democrats really care about getting the deficit under control, why can’t they agree to cut taxes and spending? Heck, since everyone at least claims they want to get the deficit under control, why do we have to cut a deal on taxes at all to do it? Why is it that Chait thinks Democrats will only go along with cutting spending if they can get a tax increase in return? Is it really because Democrats love to increase taxes so much? Bingo!

I can’t say that I think much of Chait’s column, but at least he now has his third response.

PS: This isn’t the main point I wanted to cover, but starving the beast hasn’t worked, as much as anything, because given where we are on the Laffer Curve, tax cuts seem to be producing more revenue for the government, not less.