Is Economic Growth Now a Partisan Idea? by Steven Hayward/Powerline blog
Our friend Bill Voegeli notes over on NoLeftTurns that Governor Tim Pawlenty's goal of a sustained 5 percent economic growth rate is being met with derision practically across the political spectrum but especially from the know-it-all left, and yet the 1960 Democratic Platform called for exactly that same target: "We Democrats believe that our economy can and must grow at an average rate of 5% annually, almost twice as fast as our average annual rate since 1953. We pledge ourselves to policies that will achieve this goal without inflation." And for the first half of the 1960s, the U.S. did indeed achieve this rate.
That was back in the heyday of "growth liberalism," which was the particularly American form of Keynesian "fine-tuning" of the economy. Lyndon Johnson's budget director, Charles Schultze, said, "We can't prevent every little wiggle in the economic cycle, but we now can prevent a major slide." It is important to recall that this was liberalism in its most optimistic phase, and two aspects of that long-ago liberal optimism are worth keeping in mind. One of the ironies of Paul Krugman and other liberals who now celebrate the 1950s as the economic golden age for the American middle class is that the growth liberals of that time, especially John F. Kennedy, were scornful of the Eisenhower Administration's economic record. Recall Kennedy's campaign slogan: "Let's get the nation moving again." Today that is Pawlenty's de facto slogan.
Of course the other irony is that Kennedy and his growth-oriented economists saw cutting income tax rates as an important step toward reinvigorating growth, because, among other things, "a rising tide lifts all boats." It's worth recalling the full flavor of Kennedy's view on this issue, as he explained to the Economic Club of New York in the fall of 1962:
The current income tax system siphons out of the private economy too large a share of personal and business purchasing power. . . it reduces the financial incentives for personal effort, investment, and risk-taking."
Our true choice is not between tax reduction, on the one hand, and the avoidance of large Federal deficits on the other. It is increasingly clear that no matter what party is in power, so long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough revenue to balance our budget just as it will never produce enough jobs or enough profits. Surely the lesson of the last decade is that budget deficits are not caused by wild-eyed spenders but by slow economic growth and periodic recessions, and any new recession would break all deficit records.
In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now. The experience of a number of European countries and Japan have borne this out. This country's own experience with tax reduction in 1954 has borne this out. And the reason is that only full employment can balance the budget, and tax reduction can pave the way to that employment. The purpose of cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus.
Any Democrat who talked this way today would be drummed out of the party, and would make Krugman's head explode. (Hey, there's. . . never mind.) Instead, Krugman, Robert Reich, and company are starting to wax nostalgic about the 70 to 90 percent marginal income tax rates of the 1950s, which they argue didn't retard economic performance at all, thereby willfully forgetting the critique the growth liberals made of the slow-growth Eisenhower years.
That's only the beginning of the contrast. To be sure, those growth liberals of the 1960s had a redistributionist itch--it was after all the beginning of the Great Society misadventure. But the growth liberals thought faster growth would make more redistribution possible by expanding the pie; in other words, their redistributionism was based on the idea of surplus. Today's liberals think redistribution is necessary because of scarcity and the lack of economic growth.
So what the heck happened to liberalism? Here's how one author described it:
By the end of the 1970s, however, liberalism had come to embrace the polar opposite--the limits to growth. The supposed scarcity of oil and natural resources of the 1970s was merely symptomatic of a new era of low or no growth that constricted the hitherto broad horizons of liberalism. Indeed, it might be said that within the space of a single decade, the central governing challenge of liberalism changed from allocating abundance to rationing scarcity. Jimmy Carter had ratified this thinking in his infamous Camp David retreat in the summer of 1979, where he told one group of visitors that "I think it's inevitable that there will be a lower standard of living than what everybody had always anticipated, constant growth. . . I think there's going to have to be a reorientation of what people value in their own lives. I believe that there has to be a more equitable sharing of what we have. . . The only trend is downward." Within this newly constricted horizon, liberalism's redistributionist impulse, never far below the surface, metastasized into a zero-sum mentality that believed anyone's gain must entail someone else's loss.
The author? Me, in The Age of Reagan, vol. 2. Meanwhile, today's liberalism has not only given up on economic growth, but doesn't even have Charles Schultze's long-ago confidence that it can "prevent a major slide" in the economy. Investor's Business Daily today reviews the evidence of the poor performance of the "stimulus," noting tacitly the lack of confidence the Obama Administration conveys about its own economic stewardship.