Government vs. the Market

If you ask most people which of America's two major parties stands for a bigger economic role for the government, they'll say it's the Democrats. But if this was ever true, it was before 1980. As Brad DeLong points out, the U.S. debt-to-GDP ratio - a good measure of how much our economy is supported by government deficit borrowing and spending - fell steadily after World War 2. But since then, it has risen rapidly under every Republican president and fallen under Clinton. Republicans were pumping government debt into the economy.

Why did Republicans do this? One explanation is that they were just cynical. They realized that if they borrowed and spent like there was no tomorrow, the economy would get a Keynesian boost, and they could get elected two thirds of the time - then, the other one-third of the time, the dopey Democrats would have to come in to clean things up with higher taxes. Then the Republicans would come in and say "Hey, wouldn't you like lower taxes?" and the whole party would start again.

Another explanation is that the Republicans ran out of other ideas. In the early 80s, the economy got a boost from the doldrums of the 70s when Reagan slashed regulations and cut what were then very high tax rates. But eventually you run out of taxes and regulations that you can cut without hurting the economy. And when the Republicans rapidly hit that wall, they didn't know what else to do, so they just kept cutting taxes, which drove the debt through the roof.

A final explanation is that the Republicans were corrupt. Most of the spending increases on their watch went to defense spending, which is well over half of our discretionary spending (i.e. not self-funded entitlement programs or interest payments on the debt). Defense spending mostly goes to defense contractors - i.e., companies with strong ties to the Republicans. During the same time, Republicans "privatized" many of the functions of government, from prisons to military operations. Many of these "private" firms were politically well-connected companies like Halliburton and Blackwater that won no-bid contracts from their friends in the White House and Congress. No-bid contracts meant that the government's bill actually went up, not down - but instead of going to bureaucrats, the money went to friends of the GOP.

Now maybe there is some alternative explanation out there for why the federal debt exploded on the Repblicans' watch and shrank on the Democrats'. If so, I'd like to hear it. But until I do, I'm going to have to conclude that Republicans are all about replacing private-sector productivity with government deficit spending. Not an ideology you want for your country's "pro-business" party.