How Will the War Affect Economics of U.S.?
By: Nick Passe
November 12, 2001
In politics, it is well-known that different groups have different strengths and weaknesses. Those on the ideological right often have more financial resources, while those on the left tend to be better organized and control the politically influential industries of entertainment, education and the news media. Those on the left, until the 1980s, had the advantage of having the freshest ideas, especially in the areas of social policy. Social programs (Social Security, AFDC, Medicare, etc.) with very few up-front costs but immense long-term problems, such as the creation of disincentives to work and inevitable financial crises prompted by demographic changes, were indeed fresh and appeared to offer easy solutions to poverty. But, with the economic stagnation and massive failures of this welfare state both in America and the rest of the world in the 1970s, a new, outside-the-box solution was needed.
Beginning with Keith Joseph and Margaret Thatcher in Great Britain and spreading around the world, politicians extolling the benefits of free markets were swept into power in the late 1970s and early 80s. As with most individuals with self-control problems, nations with money problems were to limit their expenditures and cut their taxes to stimulate growth. Further, entrepreneurs were not to be punished for their success with excessively high income and capital gains taxes; the risk-takers were to be praised and encouraged in their wealth-creating endeavors. In general, government was to get itself out of the way whenever possible and let the invisible hand do much of the work for free.
Countries around the world did some combination of the spending and tax cutting. Britain managed to get back on its feet by clamping down on anti-productive labor unions, cutting taxes, and by privatizing inefficient, bureaucratic state enterprises. In America, we did half of the program; we cut taxes but failed to cut spending and now have a huge debt to show for it. Also, we still have the ticking time bombs of Social Security and other entitlements for the poor and elderly.
In the middle and late 1990s, the ideas of fiscal conservatism were bludgeoned into a coma by a strong economy that eased the sense of urgency we felt about getting our long-term financial house in order. Last year, in fact, a man who was open about his desire for socialized health care was very nearly elected president. The victor, a professing fiscal conservative, could only manage a proposal for allowing private charities to compete for social service money, mild tax cuts, and no social spending cuts.
Currently there are some people, mainly from left-leaning media outlets such as the New York Times, who are advancing the view that September 11th was a turning point towards a greater role for government in peoples’ lives. They cite the emergency spending (much of which is actually proposed tax cuts) and support by many in Congress for increased unemployment benefits as evidence of such a trend. Fortunately, this is likely to be the extent of the impact from 9/11. The trends away from government interference in peoples’ lives appeared to be in jeopardy for a week or two immediately after the attacks, but the damage appears to be contained. The oncoming recession may actually prove to be a blessing in disguise for fiscal conservatives if Republicans can hold the House next year (a virtual certainty after redistricting). Costly, counterproductive social programs such as the war on drugs and ticking time bombs like social security will become more and more obviously distressing once future revenue projections are revised to reflect poor economic conditions.
Instead of slipping back into the defensive position they found themselves in after Jim Jeffords threw control of the Senate to the Democrats, fiscal conservatives (of all stripes) must start working on sales pitches for the necessary reforms our cash-strapped government must undergo in the near future. While reform is nearly always politically dangerous, the country is likely ready to concentrate on domestic issues again, as a distraction from the war if nothing else. An energized group of fiscal conservatives offering to work on our country’s long-run problems would be a welcome shift in focus from the day-to-day attention we have been lavishing on issues related to the bombings, war and recovery efforts. Social security reform need not be temporarily dead; with some media savvy it could be the defining accomplishment of this Congress. The same is true for more tax cuts. Everyone is patriotic at the moment, willing to do what needs to be done to secure the long-term interests of our country. Certainly, having a fiscally solvent government and strong economy are two of the most important national interests we have; fiscal conservatives should not be reluctant to make these points. If it takes a crisis to get people to pay attention to these issues, then so be it. The pain we as a nation could potentially face as a result of a prolonged recession or bankrupt government are far worse than anything a few terrorists with airplanes could ever do. People need to know this, and now is the perfect time to tell them.
