McCain and the Decline of the U.S. (Brad DeLong, Project Syndicate)

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http://www.gulf-times.com/site/topics/article.asp?cu_no=2&item_no=215640&version=1&template_id=46&parent_id=26

BERKELEY: Back in 1981, America’s Republican Party gave up all belief that the government’s budget ought to be balanced. The idea took hold that tax cuts should be undertaken all the time, at every opportunity, because reducing taxes supposedly raised revenue.

Irving Kristol, sometime editor of the magazine The Public Interest and one of the intellectual midwives of this idea, later wrote that he was interested not in whether it was true, but in whether it was useful. Years later, he spoke of his “own rather cavalier attitude toward the budget deficit and other monetary or fiscal problems. The task...was to create a new...conservative... Republican majority – so political effectiveness was the priority, not the accounting deficiencies of government...”

Now it has become clear that John McCain – who once criticised George W Bush’s tax cuts as imprudent and refused to vote for them – has succumbed to this potion. He appears to be proposing further tax cuts that promise to cost the US Treasury some $300bn a year, to “offset” them with cuts in earmarked spending accounted for at $3bn a year, and somehow to balance the budget.

We know the consequences: McCain’s fiscal policy is likely to be standard Republican fiscal policy – and since 1981, standard Republican fiscal policy has increased the ratio of gross federal debt to GDP by nearly 2% per year.

By contrast, a typical post-WWII Democratic administration has reduced the debt-to-GDP ratio by more than 1% per year. This is one of the issues at stake in this year’s presidential election.
Policies that ignore the level of government debt lead to the currency’s collapse, depression (due to the resulting disruption of the sectoral division of labour), and high inflation – perhaps hyperinflation.

. . . more