McCain, Money and Mondale

Anyone who reads this blog regularly knows my distaste for the US Republican Party. This distaste has been present ever since George W. Bush won the 2000 election. This does not mean that I am a partisan Democratic supporter, but it does mean that, at present, I honestly believe that the best choice America has in November is Obama and Biden.

The fact is that I will support whatever party has the better policies or the better record or a combination of both. Back in 1996 I voted for John Howard and the Liberal Party (which is, ironically, Australia's conservative party) because the Labor Government under Paul Keating was philosophically bankrupt and, despite 13 years of economic reform, had not been fiscally responsible. My support for John Howard evaporated after 2000 when he began to implement racist policies and use the fear generated by 9/11 for political gain. Joining in the 2003 invasion of Iraq was another problem for me.

So my support for the Democratic Party and Obama has nothing really to do with partisanship. I am sure that I would support the Republican Party at other times if their history since 1981 was different. Having said that, I will state now that a McCain/Palin victory in November may possibly end in disaster.

I personally have no beef with John McCain, and the only thing that really worries me about Sarah Palin is whether or not she is capable of being America's president in case McCain goes to meet his maker. The policies of John McCain, though, are problematic - specifically his tax cutting program.

I have seen a comparison of Obama's and McCain's tax plan and McCain gives the biggest tax cuts by far. Obama gives bigger tax cuts to lower income earners than McCain, while increasing the taxes of those on higher incomes, with the end result being a small net tax cut.

For many conservatives, the idea of a tax cut is wonderful news. The problem is that McCain, along with Obama, has yet to explain how such a tax cut will impact government spending. I am of the belief that any tax cut should be met by a corresponding cut in government spending. I am also of the belief that if anyone wants to increase government spending, then taxes must rise as well.

The problem is that, for the last 25 years, the Republican Party has been dominated more or less by Supply-side economics, a form of "voodoo economics" which believes that tax cuts fund themselves by stimulating economic growth and generating more tax revenue. While there is some truth to be found in the more intellectual corners of this economic system, it has resulted in a simplistic and effective myth -  that the government should just keep cutting taxes.

After 25 or more years, popular supply-side economics has resulted in nothing but large federal government deficits. Ronald Reagan's big tax cuts in the 1980s were followed by increased tax revenue but also a corresponding increase in public debt. It was not until George H.W. Bush raised taxes after his "read my lips" promise that Supply side economics began to lose its influence. But by that stage, the damage had been done and the US government was deeply in debt.

Such was the loss of standing of Supply side economics that Republicans during the 1990s returned to a more traditional economic stance. Whatever I may have disliked about the Republican Congress under Newt Gingrich and their government shutdowns and impeachments, the fact was that they worked with the Clinton administration to balance the budget - a process that eventually led to surpluses near the end of Clinton's presidency.

Unfortunately, the Republican congress under Bush enthusiastically returned to the populist appeal of tax cutting. The result has been astounding, with public debt increasing dramatically. The recent Fannie Mae and Freddie Mac bailout will see a substantial increase to this level of debt. The current recession in the United States will also result in lower tax revenues.

So, fiscal irresponsibility + Fannie and Freddie Bailout + recession equals a federal government with a massive debt burden that will most likely exceed any comparative level of net debt in peacetime US history.

Of course, for regular readers, this warning of mine is nothing new. So why am I repeating the fiscal alarm all over again? It is because I believe that a McCain/Palin administration will continue the fiscal irresponsibility started under Bush. Moreover, the inaction of the Democratic-party dominated congress (elected in 2006) has allowed the situation to deteriorate. If the White House continues to be Republican, there is little chance that a Democratic Congress will have the testicular fortitude to stand up to him and pass economically sensible bills.

The only real chance for fiscal responsibility to return to Washington is for a Democratically controlled Congress and White House. Republicans have proven themselves too attached to Supply side economics for the past 25 years (with the notable exception of the Gingrich years) while the Democrats have not.

This is not to say that the Democrats (Obama and congress) won't make a hash of the economy between 2009 and 2012 - I'm just saying that they are less likely to ruin the economy than one in which Republicans control the White House during that period.

Hard decisions must be made in 2009 about the federal budget. Loaded down with increasing amounts of debt, congress and the president must pass spending bills that will ensure that revenue exceeds spending - or at least a bill that will return the budget to surplus over a number of years. In order to do this, taxes must be raised or spending must be cut or some combination of both.

But herein lies the problem. If taxes are to be raised, won't that hurt the economy? And if spending is to be cut, which government departments should suffer the most cuts? Given the massive expansion in military spending since 2003 and the inefficiencies that run through it, and also given the fact that other federal government departments are so small in comparison (completely closing down NASA and the Department of Education won't be enough to stop a big deficit), then whoever sits in the White House next year will have a very unenviable task. What should next year's president do?

Given the nature of the Republican Party, it is unlikely that McCain and Palin will raise taxes or cut military spending. At most, they will probably cut back on other expenses (like NASA or Education), a process that will simply not be enough to return the federal government to a fiscally sound position - to say nothing for the damage that such cuts would make to important government services. The result of a McCain/Palin White House is therefore likely to be one in which the federal debt gets larger and larger - a process that will lead America further into economic decline.

On the other hand, an Obama/Biden White house along with a Democratic Congress is far more likely to make painful but necessary decisions. I'm not saying that this is a given, but I am saying that it is more likely.

Which brings to mind the prophetic words of 1984 Democratic presidential candidate Walter Mondale. When discussing the Reagan tax cuts and the deficits that had resulted from them, Mondale said these fateful words:
By the end of my first term, I will reduce the Reagan budget deficit by two-thirds. Let's tell the truth. It must be done, it must be done. Mr. Reagan will raise taxes, and so will I. He won't tell you. I just did.
Reagan won the election in a landslide, mainly due to the perception that Mondale was a "tax and spend" Democrat. Yet, in hindsight, Mondale's words have come back to haunt the Republican Party and the memory of Reagan. Supply side economics was still in its ascendency during the Reagan years and people had not yet begun to suffer its negative effects. Now that Supply side economics has been proven beyond reasonable doubt to be unworkable and ultimately damaging to an economy, the time has come to pay the price for political expediency and financial stupidity.

It was over ten years ago that The Simpsons episode "Trash of the Titans" was aired. In that episode, Homer becomes Springfield's sanitation commissioner, defeating the incumbent Ray Patterson (voiced by Steve Martin), and promises a lot of crazy things for the people of Springfield. Homer's policies soon end up bankrupting his department and completely ruining the city. When Ray Patterson is unanimously voted back in as sanitation commissioner, he gives this wonderfully short speech:
Oh gosh. You know, I'm not much on speeches, but, it's so gratifying to leave you wallowing in the mess you've made. You're screwed, thank you, bye.
I can't help but think of comparing Walter Mondale to Ray Patterson here. Twenty-four years after his abysmal failure in the 1984 presidential election, Mondale could probably be justified in repeating Ray Patterson's short speech.

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