How Reaganomics Became Rubinomics

The bizarre Republican swoon for deficit spending.

“You and I as individuals can, by borrowing, live beyond our means, but for only a limited period of time. Why, then, should we think that collectively, as a nation, we are not bound by that same limitation?”

—Ronald Reagan’s first inaugural address, 1981

“Glenn Hubbard, chairman of the White House’s Council of Economic Advisers … derides the ‘current fixation’ with budget deficits, and labels as ‘nonsense’ and ‘Rubinomics,’ the view espoused by former Clinton Treasury Secretary Robert Rubin that higher deficits lead to lower growth.”

—The Wall Street Journal, Dec. 17

How in the world did this happen? Once upon a time, federal government deficits were denounced by St. Ronald as a focus of evil barely less threatening than communism itself. Now that concern is mocked by a Republican White House as the nonsensical “fixation” of a previous Democratic administration. In recent weeks the term “Rubinomics” has spread through the press like a rash—promoted by people who apparently believe that the best way to discredit anything is to associate it with Bill Clinton. They are not deterred by the inconvenient fact that the economy did rather well under Clinton and Rubin—better than under either of the Bushes or Reagan himself. Even more astonishing is that the Republican propaganda machine is trying to stamp “Clinton” all over one of the cornerstones of Reaganism.

In fact the coming White House campaign for changes in the tax code is starting to look like a world-class weird combination of extreme frankness and extreme fantasy. For a quarter-century, Democrats have been saying that Republican tax cuts favor the rich, and Republicans have been indignantly denying it. Now, as Tim Noah has been reporting in Slate, prominent Republicans are saying: Heck yes, we’re out to shift the tax burden from the very affluent to the middle class. White House CEA Chairman Hubbard is one of those who has declared openly that rich folks deserve a break and ordinary folks deserve to pay for it. In an administration where economic advisers are fired merely for wearing a bad tie while loyally mouthing the party line in perfect iambic pentameter, Hubbard is still in good odor. So this bolt of honesty is apparently intentional. It may be brilliant political jujitsu—conceding the opposition’s most damning point leaves them with mouths agape and little to say—or it may be nuts. But at least it is honest.

There is an honest element in the new party line about deficits, too. At least the Republicans are no longer pretending that deficits, if they happen to occur, are detritus left behind by the previous administration like all those McDonald’s wrappers behind the dresser in the Lincoln Bedroom. Instead, Republicans embrace the coming deficits as their own and pooh-pooh any desire for a balanced budget as some kind of liberal Democratic folly. This is breathtakingly dishonest on three levels.

First is the utter contradiction between the new “deficits don’t matter” line and what the Republican party has claimed to stand for over decades. There is nothing wrong with changing your mind. Indeed that can be one of the nobler forms of intellectual honesty. But if you decide that one of the core values in your political philosophy is misguided, you ought to say so before launching a campaign of ridicule against those who believe what you believed until the day before yesterday. Maybe you even ought to apologize. (Sometimes, as in the case of Sen. Trent Lott, even daily apologies of escalating slavishness may not be enough—though, like every American, I’m curious to see how much insincere self-abasement the man will offer before giving up.)

Ronald Reagan entered the presidency promising to rid the nation of government borrowing and, of course, ended up tripling the national debt. But Reagan never let his crystalline beliefs be fogged by reality, including the reality of his own behavior.

Even if Republicans hadn’t been demonizing deficits for decades, their deficits-don’t-matter line would contradict other allegedly core Republican beliefs. That is the second level of dishonesty. The explanation of why deficits allegedly don’t matter goes something like this. When the government spends more than it takes in and borrows the difference, this has two potential effects. The borrowing reduces the amount of capital available for private investment, raises interest rates, and makes us poorer. But the extra spending or lower taxes stimulate economic activity and make us richer. The question is: Which effect is bigger?

A battle of empirical studies is going on about whether deficits actually do raise interest rates. And maybe they don’t, but only if the law of supply and demand and other basic tenets of free-market capitalism have been repealed, which is an odd position for Republicans to take. Meanwhile the short-term stimulus is a classic “Keynesian” strategy—a word Republicans usually can’t even pronounce without a sneer.

Keynes argued that modern economies have a tendency for inadequate demand that can produce a self-feeding spiral into recession or worse and that government deficits can be used as weapons against this danger. Republicans have gone from mocking that idea to parodying it. There hasn’t been a moment since 1980 when Republicans thought it was the wrong time for a fiscal stimulus in the form of a tax cut. They were right to eschew Keynesianism—one taste and they became addicts.

But if government borrowing never hurts the economy and if taxes always do, why torture ourselves with taxes at all? Why not borrow the whole cost of government? If you suspect that won’t work, you’re right—but if the anathematizers of “Rubinomics” have a theory of when deficits can become too big, they haven’t shared it. Meanwhile we have the evidence in front of our own eyes that Clinton and Rubin delivered levels of job creation, investment, and economic growth that the current administration would be thrilled to duplicate. And “Rubinomics” did it without the cortisone shots of short-term stimulus that Bush is demanding.

Thus the third level of dishonesty in the newfound Republican fondness for deficits: It conflicts with obvious reality. But I suppose that’s a minor consideration.