LAST WEEK, as I ordered a tallvanilla latte, I couldn't help but notice that two of the three conversations in the Starbucks line were about foreign policy. Later that same day, I watched a few news programs and realized the same thing: Foreign policy dominated the discussion. There's no doubt that post-9/11 America should be taking a good, hard look at her foreign policy, but it seems we've all together forgotten about domestic issues. So, as every day progressively demonstrates the failure of conservative ideology in handling international relations, there remains insufficient debate on economic policy in America. Using the proverbial ECON-201 toolbox, we can take one crucial facet of conservative dogma -- tax cuts -- and demonstrate how they fail an unlikely group: conservatives.
To date, conservative economic ideology has been dominated by one overarching principle: Big government is bad government. Made popular by Reagan, the conservative response in the 1980s was fairly intuitive. If you want government to stay small, cut taxes, thereby choking the beast. Instead of trying to scold the government into responsible spending, simply don't give it money to spend. If you reduce the supply, you reduce the amount demanded. The approach was so intuitive that even Democrats accepted its framework. If conservative tax cuts mean small government, then Democratic opposition could only mean one thing: Democrats support big government. And, at least since then, both parties have more or less come to accept the dubious notion that big government is a long-standing tradition of progressivism.
Unfortunately, there's a problem with all these simple and intuitive theories: They don't work. First of all, we run into problems when attempting to explain certain correlations over the past 26 years. Coming into office in 1980, Reagan chastised the Carter administration for allowing the federal government to spend a soaring 27.9 percent of national income. But according to the Mises Institute, in 1988, "federal spending accounted for 28.7 percent of national income." Furthermore, the presidencies of Ford and Carter combined accounted for an increase in 1.4 percent in the government's take of national spending, as compared with Reagan's three percent. These indicators are among many that lead to the same conclusion: The federal government got bigger faster after Reagan's tax cuts.
By contrast, the slight increases in tax rates made by George H. W. Bush and Bill Clinton correlated with a slower growth of the federal government. Again, when George W. Bush cut taxes, the federal government got bigger quicker.
The typical conservative explanation for this phenomenon has been a confused mess, generally stressing academic buzzwords such as "confounding variables" but consistently failing to provide pragmatic analysis of what these variables may be or how to mitigate their effects. In an attempt to make Economics Prof. Ken Elzinga proud (or disappointed, as it may be), I offer a counter-intuitive theory I decided should be discussed: Tax cuts in the economy increase the size of government.
Every good ECON-201 scholar knows that as you decrease the price of goods or services, the amount demanded of the respective goods and services increases. If we understand government to be a complex service, which it is, then this simple model has explanatory power. By decreasing the cost of government to the people through tax cuts (without a corresponding and noticeable decrease in services), we are giving people the same service (government) for a lower price. The supply and demand paradigm would predict that in turn, people will demand a greater amount of government. Just as decreasing the price of investment consulting would lead to a demand for a greater amount of investment consulting, so too do tax cuts create a demand and corresponding increase in government spending.
Any good conservatives' first response will be that of Reagan's: If you cut taxes, then the government, like a child cut off from his allowance, will be unable to spend. However, the government is not a child. Unlike children, the government can borrow or engage in deficit spending, both of which lead to higher debt. According to the Mises Institute, the Reagan administration's policy tripled the Gross Federal Debt from $900 billion to $2.7 trillion. After George H. W. Bush and Clinton's presidencies, both of which slightly increased taxes, the government actually produced a surplus. And, perhaps unsurprisingly, this surplus died and fell into the hundreds of billions after George W. Bush's tax cuts.
Worried that my analysis was based upon an incomplete understanding of economics (quite the common fallacy these days), I searched to see if anyone had made a similar argument. Sure enough, William Niskanen, chairman of CATO, already stumbled upon a similar train of thought. Realizing the devastating implications for the conservative economics, which is wholly premised on anti-tax dogma, Niskanen stated, "I would like to be proven wrong." The conservative values of small government and tax cuts are in a probably irreconcilable conflict with one another. In fact, it seems, as Niskanen points out, the best way to decrease government size is to increase taxes and decrease spending (the policy that Clinton pursued, and the policy that Bush promised to veto). The failure to replace conservative dogma with a reasoned approach to economic policy has created a major debt crisis that, sadly, is surpassed only in magnitude by the inexhaustible failures of conservative foreign policy. Even sadder, the only people that lose are the American people, not excluding conservatives.
Sina Kian's column usually appears Tuesdays in The Cavalier Daily. He can be reached at skian@cavalierdaily.com.
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