Jewish World Review Nov. 9, 2001 / 23 Mar-Cheshvan, 5762
the prodigal Keynesians?
The airport security bill is being held up by the Democrats' insistence that security will be best ensured by a federalized security force, not by private security forces competing to uphold security standards set by the federal government. As security-conscious as the Israelis are, they rely on private security forces. But the Democrats and some Republicans demand a federalized force spanning out across all the various airports of the land. These conventional pols have learned nothing about the privatization that has brought efficiency to so many areas of society over the past two decades.
Government bureaucrats are still the exemplars of high service to these Democrats and Republicans. Well, if this were 1936 I might share their admiration, but very few Americans who have brought a tax problem to the IRS now would. Anyone who has dealt with HUD or any of the other federal bureaucracies has had to switch gears from the efficiency of the private sector to the slow motion of the public sector with all its opportunities for error.
The conventional pols would have us think that a federalized airport security force would be designed to the standards of the Green Berets. Yet storming an enemy citadel is vastly different from standing vigilantly at commercial airports eyeing thousands of peaceful citizens for eight or more hours a day. Most Americans see government services as slow, unresponsive and incompetent. Why would a federalized airport security force be any different?
The debate over an economic stimulus package also suggests that the Democrats have learned very little from recent experience. Many House Republicans too seem to be in the dark. The recently passed House bill would attempt to stimulate the economy by returning money to people and corporations in the hope that they would spend that money and "get the economy going again," as the phrase has it. Yet economic experience proves this fond hope to be unwarranted.
As Bruce Bartlett writes in the Wall Street Journal, rebates on the state and federal level since the 1970s have repeatedly failed to raise consumer spending significantly or to jolt a sleeping economy to action. People usually take their rebate and put it in the bank or use it to pay off debt. Economists have even developed an explanation for the people's failure to spend rebates, "the permanent income hypothesis." According to the hypothesis, spending patterns do not change owing to the temporary payment of a rebate. Only permanent income increases encourage people to spend more.
Economic experience does offer one proven policy for economic stimulus, tax cuts on the margin. The Reagan tax cuts in the 1980s, the Kennedy cuts in the early 1960s and the Coolidge cuts in the 1920s took the tax burden off economic activity. Consequently, workers eager for more long-lasting income worked harder and invested more. The economy grew more prosperous.
Taxes impede economic activity. Tax cuts (SET ITAL) stimulate (END ITAL) economic activity. That is not something that has always been known by policymakers. In reading historian David Kennedy's superb history of the United States from 1929 to 1945, "Freedom From Fear," I was again reminded that both Republicans and Democrats in the 1930s actually believed that they could overcome the Depression by raising taxes. President Franklin Roosevelt's first budget raised taxes and cut government. Doing so only slowed the economy more.
There is one stimulus package on Capitol Hill that reveals that at least some politicians have learned from experience -- the Senate Republican package put together by Iowa's Sen. Charles Grassley and his colleagues on the Senate Finance committee. It would advance the implementation of marginal income tax rates that were passed this summer but are not to take effect until 2004 and 2006. Grassley's plan would put them into effect this January. The economy has slowed. GDP fell by 0.4 percent in the third quarter. With the hits the economy has taken since Sept. 11, the fourth quarter will be slower still.
The federal government is weighing too heavily on the taxpayer. We now know that it took in a surplus of $127 billion this past fiscal year. At a time of economic slow-down, surpluses like that are not what is needed to spur growth. Experience has shown that cutting marginal taxes rates is the policy that leads to growth. Until the stimulus debate began on Capitol Hill, I thought most Democrats had learned
11/01/01: The New Seriousness