is the title of this paper by Kent Smetters, which is my way of saying thank you to William Polley for refereeing the debate between a Dead Parrot (Victor) and the Baby Angrybear (that’d be me). Kent’s paper puts the 2018 v. 2042 debate into a nice context both theortetically and historically. Kent also presents evidence for what I’d call the “Squander the Surplus” hypothesis.
The Squander the Surplus, however, is not the same as the Starve the Beast hypothesis. Yes, Reagan fiscal policy, which has been revived by Bush43, is indeed racking up huge increases in the General Fund’s debt. But what led to these General Fund deficits. While some on the right wish to say it was an increase in Federal spending, Lawrence Kudlow often writes about how Reagan cut spending. They are both wrong. Sure, Bush43 has increased Federal spending relative to GDP but the main reason for his General Fund deficit is his insistence on large and permanent income tax cuts.
Victor makes some interesting points including noting the Federal spending fell in the 1990’s, but note this was due entirely to the peace dividend. And no one would suggest that the Evil Empire fell because of the 1981 tax cut – no one except Mr. Kudlow, that is. Victor also brought up Barro’s tax smoothing argument, which is an interesting one – but cutting taxes in 1981 or in 2001 was anything but smoothing unless you believe there was some magic wand to erase Federal spending. Finally, Victor’s point about state&local spending rising during the 1990’s is relevant to the degree that some conservatives might rightfully point to Federal revenue sharing as being a fair chunk of change. NRO’s econopundits have made a big deal about this one, but I wish they would just once admit that these increases were in the big three ticket items: education, public order, and health care. Why? Because unless the 2006 GOP campaign is going to be about slashing education and health care budgets and taking cops off the street, eliminating Federal revenue sharing is nothing more than a backdoor state&local tax increase. Similarly, the Bush plan to raid the lockbox but still maintain the 12.4% payroll contribution is nothing more than a backdoor employment tax on young people.
But back to Dr. Smetters. As George W. Bush had the opportunity to discuss the Al Qaeda threat with Richard Clarke during the summer of terror (2001), he also could have seriously discussed Soc. Sec. reform with Dr. Smettters. He did neither. So to steal a line from Max Sawicky (as I often do):
no deals with dipsticks
Yes, I do not trust this White House to do Social Security reform.