Free lunch conservatism: The Santa who failed

In an important post-script to the presidential election, Mitt Romney reverted to attack mode on the 47 percent. In a conference call to big donors, he essentially said that he would have won the election, if not for all the "gifts" Obama had given to targeted groups of his supporters. "The President's campaign," Romney said, "focused on giving targeted groups a big gift - so he made a big effort on small things. Those small things, by the way, add up to trillions of dollars." Obama had been "very generous" to blacks, Hispanics and young voters, Romney said, citing examples such as "free contraceptives" which "were very big with young college-aged women".

"What the president's campaign did was focus on certain members of his base coalition, give them extraordinary financial gifts from the government, and then work very aggressively to turn them out to vote," Romney said. He also claimed that he had run a dramatically different sort of campaign, as if it offered nothing at all to the very people he was speaking to, whose super-low tax-rates he had promised to protect. Instead, he said, "Our campaign, in contrast, was talking about big issues for the whole country - military strategy, foreign policy, a strong economy, creating jobs and so forth."

Of course, Obama didn't offer free contraceptives to college-aged women, his administration - not his campaign - required contraceptive coverage in insurance coverage - coverage that was already being paid for, and that actually pays for itself on the insurance companies' side. And there's nothing the least big scandalous about government trying to do something to benefit its citizens, as Romney is clearly trying to imply. Nor were Romney's promises to cut taxes or to increase military spending dramatically different in kind from what Obama was doing.

A tale of two Santas

But it's best not to get distracted by the multifaceted plethora of little lies in Mitt's message lest we miss out on the really big ones. As is too often the case with today's Republicans, the central lie was first articulated by Rush Limbaugh , the day after Romney lost: 

Just to be clear, Rush's lie is two-fold: First, we are not a country of children - what Democrats are offering is not something-for-nothing, an alternative or opposition to work, but a fairer system overall (the little lie illustrates the big one: It's contraceptives as part of comprehensive health insurance, not contraceptives given out like free candy). Second - as a classic example of projection - conservatives have their own Santa Claus, too. Indeed, the conservative Santa Claus has been a key to their politicalsuccess for the past 30+ years, as well as their abysmal policy failure.

Don't take my word for it, it comes directly from the man who invented the conservative Santa Claus, Jude Wanniski, author of the " Taxes and a Two-Santa Theory ", published in March 1976, which began, "The only thing wrong with the US economy is the failure of the Republican Party to play Santa Claus," and went to explain:

Of course, Wanniski is full of it. Income growth is much stronger under Democrats than it is under Republicans. But that's his theory, anyway. And for more than 20 years now, it's been Republican orthodoxy as well, ever since George HW Bush broke his "no new taxes" pledge, and lost his re-election bid in the wake of a conservative revolt. This was a huge change from how things were when Wanniski wrote his article. Republicans, he argued then, were hung up on the idea of balancing budgets, and that got in the way of being their own kind of Santa Claus. Republicans "embrace the role of Scrooge, playing into the hands of the Democrats, who know the first rule of successful politics is Never Shoot Santa Claus".

What to do about taxes?

There are two major problems with Wanniski's two Santa theory, both reflecting a lack of symmetry. First is that the basic logic of government spending broadly benefits the economy as a whole, whereas tax-cutting logic disproportionately benefits the wealthy. Of course there are ways to tinker with both logics, but the stark difference in their central tendencies is undeniable.

The second is that spending can go on forever, but tax-cutting cannot. Governments have been spending money since the dawn of time. But tax-cutting can only go on so long. It is a one-trick pony. Wanniski argued that cutting taxes stimulates the economy, in turn bringing in more revenue, so that tax-cuts pay for themselves - a free lunch, hence "free lunch conservatism". But unlike government spending, tax cutting can't go on forever. Once you've cut the tax-rate to zero, no amount of growth will bring in more taxes. In the long run, there is no long run. "There is no there there," as Gertrude Stein put it.

In practice, it's even worse, since revenues routinely fall, not rise, after tax-increases. Whether the theory has ever worked in the short run is debatable. It certainly failed big-time when Reagan tried it - the deficit would be gone by 1984, he promised, instead it mushroomed as never before. But it's proven to be politically quite successful, for the simple reason that it has changed the game of politics. Republicans embrace the two Santa theory when they're in power, then shift focus to demanding balanced budgets when Democrats take control. It's a heads-I-win-tails-you-lose sort of proposition.

Conservative policymaker Bruce Bartlett, who held senior policy roles in the Reagan and George HW Bush administrations, and previously worked for both Jack Kemp and Ron Paul, two early Congressional advocates of supply-side theory, wrote an invaluable thumbnail primer on Wanniski's two Santa theory and its influence. In it he wrote:

The combination of political brilliance and economic questionableness was indeed prophetic. Wanniski's article was published in the last year of the Nixon-Ford term, the only 4-year term since World War II in which the debt-to-GDP had increased (though only slightly) up to that point. Deficits over that period had been remarkably well controlled. In addition, income growth for the bottom 20 percent was actually greater than that for the top 1 percent over that period - a period of remarkably broad shared prosperity. But thanks in part to the two Santa theory, all that was about to change, as Bartlett continues:

Or, as Vice President Cheney famously said two decades later, "Reagan proved that deficits don't matter." At least not until a Democrat is back in the White House again.

Attack of the tax-cut Santa

If adopting Wanniski's two Santa theory has been political gold for Republicans, despite being economic baloney, the reverse has proved true for Democrats: They clean up the GOP's messes, thereby doing the GOP's dirty work for them. And the political rewards for this have been poisonous.

In the 1990s, Bill Clinton was elected president after twelve years of this kind of policy, and he reversed course rather dramatically, raising taxes and reducing the debt-to-GDP ratio every year he served in office, ending up with a multi-billion dollar surplus, which his successor, George W Bush, quickly turned into a massive deficit again. Bush made his father's deficits look like chump change, so when a new Democrat, Barack Obama, was elected to replace him, there were even more hysterical demands for budget slashing.

If Democratic efforts to clean up Republican budget messes proved ultimately futile, things were even worse politically. The DC conventional wisdom is that Clinton's presidency somehow saved the party by "making it relevant again". But the election results say quite the opposite: The very next cycle after he was elected, Democrats not only lost the House for the first time in 40 years, they also lost state legislative races in record numbers as well.

When Obama was elected 16 years later, the same thing happened all over again: His attempt to hug the centre was blocked by Republican intransigence, which was far more effective the second time around, due to the massive balance sheet recession Obama inherited. Two years later, Democrats not only lost the House once again, they lost so badly at the state level that the GOP held more state legislative seats than at any time since 1928. They turned right around gerrymandered congressional seats so radically that the GOP kept control of the House in 2012, even though more people voted for Democratic House candidates. In a group of seven swing states listed by Mother Jones magazine, Obama won all but North Carolina, while the GOP took more than two-thirds of the seats. That's what the tax-cut Santa delivers to go along with diamonds for the rich.

Blaming the wrong Santa

If politics were truly rational and truly democratic, the tax-cutting Santa would be history. We've run the experiment not once, but twice, and the results were exactly what you'd expect in the first place: It didn't work. Revenues go down, deficits go way up: The tax-cutting Santa brings diamonds for millionaires, but only lumps of coal for the rest of us. 

But politics is neither rational nor democratic - at least not without a great deal of struggle to make it so. It is a game of power, which usually means a game that those with money control. A classic example of that is the "bipartisan" "Fix The Debt" campaign, the subject of a recent report from the Institute for Policy Studies , which found the following:

  • The Fix The Debt campaign has raised $60 million and recruited more than 80 CEOs of America's most powerful corporations to lobby for a debt deal that would reduce corporate taxes and shift costs onto the poor and elderly.
  • The 63 Fix The Debt companies that are publicly held stand to gain as much as $134 billion in windfalls if Congress approves one of their main proposals - a "territorial tax system".
  • The CEOs backing Fix The Debt personally received a combined total of $41 million in savings last year thanks to the Bush-era tax cuts.
  • Of the 63 Fix The Debt CEOs at publicly held firms, 24 received more in compensation last year than their corporations paid in federal corporate income taxes.

This is precisely the tax-cutting Santa sort of thing that Romney meant when he spoke of "talking about big issues for the whole country". But the real tragedy is that Obama would probably go along with it, too. Fix The Debt was co-founded by the co-chairs of the Simpson-Bowles Commission - which was Obama's personal creation. Its co-chairs are Ed Rendell, former head of the Democratic National Committee, and Judd Greg, the former GOP senator from New Hampshire who briefly accepted, then declined Obama's nomination to be Commerce Secretary. In August, the two co-wrote an op-ed in which they said:

Not a word about the tax-cut Santa, it's all the spending Santa's fault!

As if all the above were not outrageous enough, consider the deceitful moral subtext involved. On the one hand, the tax-cut Santa is justified by saying, "It's your money!" as if everything we make is the product of our work alone, regardless of the whole society and economy we live in. "How much money would each of us make alone on a desert island?" we ought to ask ourselves, in order to have a more realistic perspective on the reason why taxes are both practically and morally well justified. Instead, the "It's your money!" cry appeals to a dual sense of moral rectitude and grievance: It's your money, and the government's a thief! Never mind how wretched you'd be if no tax money had ever been spent on you. You probably wouldn't even be able to read, but it's your money, dammit!

On the other hand, when the tax-cut Santa's bill comes due, then it's all the spending Santa's fault - along with all those undeserving people the spending Santa gave all those special gifts to. This is the magical moral logic on which today's conservative ideological dominance is built. It's not just the framework for Romney's self-pity. If that's all it were, we could all just laugh at it. No, the laugh's on us, because it's also the framework for Obama's "grand bargain" as well.

Paul Rosenberg is the senior editor of Random Lengths News, a bi-weekly alternative community newspaper.