The Financial Seminary
By Gary Moore, July 18, 2011
I recently wrote an article for this paper about why this life-long Republican, and former advisor to Jack Kemp who was the co-architect of Reaganomics, has just re-registered as an independent. The primary reason was the GOP's, and in particular the Tea Party's, current fascination with the philosophies of Ayn Rand. She likely inspired Reagan with the line "government is the problem." But being a devout atheist, Rand still strongly opposed Reagan's election as his "city on a hill" reflected the Calvinism that shaped early America. And Rand wanted to be remembered as the "greatest enemy of religion ever." Today, Rand's Atlas Shrugged is mandatory reading for the staff of Congressman Paul Ryan who is leading the Republican effort to cut federal spending. So I believe the GOP left me more than I left it.
President Reagan and Jack were principled conservatives but pragmatic enough to increase the federal debt to win the Cold War. Such pragmatism is absolutely crucial in a multi-cultured republic and world where politics is often compared to sausage making. Sadly, today's Tea Party seems as dogmatic as the utopianist Rand, insisting only the choicest cuts of libertarian thought be considered as policy. That is all too evident in the current debate over fiscal policy. One might think that as dependent as America is for foreign capital right now, Tea Partiers might care what other nations think about our finances. Apparently, too many don't. The July 9th issue of The Economist, a British publication read by financial leaders around the world, contained a feature editorial entitled: "America's Debt: Shame on Them. The Republicans are playing a cynical political game with hugely high economic stakes." It added:
"There is no good economic reason this should be happening. America's net indebtedness is a perfectly affordable 65% of GDP...The current problems are, rather, political...The Republicans are pushing things too far. Talks with the administration ground to a halt last month, despite an offer from the Democrats to cut at least $2 trillion and possibly much more out of the budget over the next ten years. Assuming that the recovery continues, that would be enough to get the deficit back to a prudent level. As The Economist went to press, Mr Obama seemed set to restart talks. The sticking point is not on the spending side. It is because the vast majority of Republicans, driven on by the wilder-eyed members of their party and the cacophony of conservative media, are clinging to the position that not a single cent of deficit reduction must come from a higher tax take. This is economically illiterate and disgracefully cynical.
This newspaper has a strong dislike of big government; we have long argued that the main way to right America's finances is through spending cuts. But you cannot get there without any tax rises. America's tax take is at its lowest level for decades: even Ronald Reagan raised taxes when he needed to do so. And the closer you look, the more unprincipled the Republicans look. Earlier this year House Republicans produced a report noticing that an 85%-15% split between spending cuts and tax rises was the average for successful fiscal consolidations, according to historical evidence. The White House is offering an 83%-17% split (hardly a huge distance) and a promise that none of the revenue increase will come from higher marginal rates, only from eliminating loopholes. If the Republicans were real tax reformers, they would seize this offer. Both parties have in recent months been guilty of fiscal recklessness. Right now, though, the blame falls clearly on the Republicans. Independent voters should take note."
One who may have taken note was Martin Wolf, the respected economic columnist for The Financial Times, another British publication. In its July 13th edition, Wolf wrote: "From Italy to the US utopia verses reality." He wrote: "The private and public sectors are intertwined. The view of Republican hawks in the US that the crisis has fiscal roots alone is wrong. Easy credit ends up in fiscal crises...The astonishing feature of the federal fiscal position is that revenues are forecast to be a mere 14.4 percent of GDP in 2011, far below their postwar average of close to 18 per cent. Individual income tax is forecast to be a mere 6.3 per cent of GDP in 2011. This non-American cannot understand what the fuss is about: at the end of Ronald Reagan's term, receipts were 18.2 percent of GDP."
I'm sending Wolf a copy of this article. Perhaps he will help those who lend to the United States to better understand the chaos Rand's utopianism is causing in America's political-economy.
Gary Moore has written five books on the morality of political economy, the last being Faithful Finances 101 from the John Templeton Foundation Press. You can read more at www.financialseminary.org. He is a registered representative of, and offers securities through, NPC of America (NPCOA). Opinions expressed here are not necessarily endorsed by NPCOA.