Here’s a moment from the VP debate that I didn’t totally understand at the time and I don’t think has gotten the scrutiny it deserves. It helps illustrate how badly wrong the conventional wisdom is about Democrats and the budget deficit—if there’s a problem with the party in this regard it’s that they’re much too sincerely committed to low deficits.
And, by the way, they talk about this Great Recession if it fell out of the sky, like, “Oh, my goodness, where did it come from?” It came from this man voting to put two wars on a credit card, to at the same time put a prescription drug benefit on the credit card, a trillion-dollar tax cut for the very wealthy. I was there. I voted against them. I said, no, we can’t afford that.
And now, all of a sudden, these guys are so seized with the concern about the debt that they created.
So on one level, Biden’s point here is that Republicans are huge hypocrites on the subject of debt. Absolutely true. But what’s this about wars on the credit card? I heard some snark about this to the effect that Biden voted for the wars too. And so he did. But he also opposed the 2001 and 2003 Bush tax cuts, and this kind of rhetoric was common from Democrats at the time. The party was split on the war in Iraq, but united on the principle that taxes should be higher to offset war spending.
But why? What kind of sense does that make?
Leave aside the ridiculous notion that the Great Recession was caused by Bush-era debt. Was anything in any way made worse but the fact that taxes weren’t higher during the Bush years to pay for the wars? For opponents of those wars the idea that they should be “paid for” was attractive as a foreign policy point. People prefer to pay lower taxes rather than higher taxes, so financing the wars with taxes rather than borrowing would have created an anti-war constituency of people looking for tax cuts.
But as economic policy this makes no sense.
Now you can look to Vietnam for an example of a war that maybe should have been paid for with lower taxes. The Vietnam-era policy situation was very expansionary, which kicked off the early phases of the Great Inflation of the era. The Federal Reserve could have kept inflation in check with higher interest rates, but that would have crowded out potentially useful private investment. But during the Bush years, we had low inflation, low interest rates, and plenty of private investment. What would higher taxes have accomplished? There are lots of valid criticisms to be made of Bush-era fiscal policy. Low taxes could have gone to bolstering working class incomes, for example, rather than those at the high end. We could have made potentially useful domestic public investments rather than spending all that money in Iraq (according to HSR opponent Randall O’Toole, for example, a 12,800-mile nationwide true high-speed rail network could have been built for roughly the cost of the war). But the idea that we should have relied more on taxes and less on borrowing doesn’t hold much water.