Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul. He is the author of “The Benefit and the Burden: Tax Reform – Why We Need It and What It Will Take.”
Most Republicans and conservatives despise the British economist John Maynard Keynes and believe his theories are the root of all evil in economic policy. Yet when push comes to shove, Republicans are happy to fall back on Keynesian theories when it suits them.
Perspectives from expert contributors.Today’s Economist
As David Frum, a speechwriter for George W. Bush, recently put it, “We’re all Keynesians during Republican administrations.”
The latest evidence comes from Mitt Romney, in an interview with Time magazine, during which he expressed concern about the impending fiscal contraction on Jan. 1, 2013, when the Bush-era tax cuts expire and various large cuts in spending are scheduled to take place – a result of last summer’s budget deal. A May 22 report from the Congressional Budget Office estimated that these actions would reduce the federal budget deficit by about 4 percent of gross domestic product next year.
One would think that Mr. Romney would embrace this huge deficit reduction and say, “Bring it on!” After all, his party has long asserted that deficits drain capital from the economy that would better be put to use by the private sector.
Indeed, many conservatives claim that deficits are destabilizing and the principal impediment to economic growth. In Europe, conservatives have been successful in making fiscal consolidation the principal means of stimulating growth.
Keynesians, including the Times columnist Paul Krugman, have been highly critical of the Europeans for impeding growth rather than stimulating it with contractionary fiscal policies. For example, with an eye on Europe, Professor Krugman has written, “Slashing spending in a depressed economy depresses the economy even more, and if you don’t have to, you shouldn’t do it — you should wait until the economy is stronger.”
Consequently, it is somewhat heretical to hear Mr. Romney express grave concern about the potential economic impact of embracing the conservative consensus and slashing the deficit quickly. As he told Time’s Mark Halperin:
If you take a trillion dollars, for instance, out of the first year of the federal budget, that would shrink G.D.P. over 5 percent. That is by definition throwing us into recession or depression. So I’m not going to do that, of course.
Continuing, Mr. Romney said:
I don’t want to have us go into a recession in order to balance the budget. I’d like to have us have high rates of growth at the same time we bring down federal spending, on, if you will, a ramp that’s affordable, but that does not cause us to enter into an economic decline.
According to the C.B.O., Mr. Romney is in the ballpark with his estimate. It projects that the fiscal tightening already programmed into law will reduce the deficit by $560 billion next year, which will reduce real G.D.P. growth to −1.3 percent from 5.3 percent in the first half of next year if all the fiscal tightening is postponed. Generally speaking, economists define a recession as two back-to-back quarters of negative real growth.
The problem is that this forecast makes sense only if one accepts Keynesian economics — something the C.B.O. has long been accused of doing. Partly for this reason, Newt Gingrich referred to it as a “reactionary socialist institution” and called for it to be abolished.
Mr. Romney is not the first Republican to embrace Keynesian economics. The free-market economist Milton Friedman, who advised the G.O.P. presidential candidate, Barry Goldwater, in 1964 told Time in 1965, “We are all Keynesians now.” (Dr. Friedman later complained that the Time reporter truncated his full quotation, which was, “In one sense, we are all Keynesians now; in another, nobody is any longer a Keynesian.”)
In 1971, Richard Nixon famously told the broadcaster Howard K. Smith that he was “now a Keynesian in economics.” Mr. Smith expressed shock at Nixon’s statement. He likened it to a Christian saying, “All things considered, I think Mohammad was right.”
In 1975, Gerald Ford responded to the recession that began in November 1973 by supporting a one-shot tax rebate of 10 percent of a taxpayer’s 1974 tax liability, with a minimum rebate of $100 and a maximum of $200 (between $418 and $836 in today’s dollars). This was pure, unadulterated Keynesian economics — just put money in people’s pockets, and they will immediately spend it and growth will ensue.
Although Ronald Reagan never expressed sympathy with Keynes, many economists have asserted that his economic policies were de facto Keynesian. They point to the sharp rise in federal spending to 23.5 percent of G.D.P. in 1983, from 21.7 percent in Jimmy Carter’s last year, which significantly softened the blow of the 1981-82 recession and helped restore growth.
In 2001, George W. Bush responded to the recession that began in March by proposing another tax rebate of $300 to $600, even though extensive research by the economists Alan Blinder and Franco Modigliani and Charles Steindel showed that the 1975 rebate had very little impact on growth. According to the journalist Ron Suskind, when Mr. Bush’s economic advisers tried to tell him that the rebate was bad policy, he told them, “If I decide to do it, by definition it’s good policy.”
Although research by the economists Joel Slemrod and Matthew Shapiro in 2003 found that the 2001 rebate had minimal stimulative effect, Mr. Bush supported yet another rebate in 2008 of $300 to $1,200, depending on one’s income and filing status, to counteract the recession that began in December 2007.
Subsequent research by the C.B.O. and the Bureau of Labor Statistics once again found that it had a minimal impact.
My view is that sometimes Keynesian policies are right and sometimes they are wrong; it all depends on the economic circumstances. Historically, many Republicans have apparently agreed.
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