Neither Party Stands for Change

Change is the official buzzword of the 2008 Presidential Election. Everyone likes to throw it around: Obama started the craze with a series of high-minded-sounding but empty slogans, and now the word has even been co-opted by John McCain, seeking to recover his maverick image. But what exactly are we changing from? Partisan politics and rancor? I don’t think even the most ardent Obama supporter would be able to back up that claim. Obama likes to make reference to “the failed economic policies of George W. Bush”. But what exactly would be different?

As it turns out, neither party is willing to question the underlying economic assumptions that are leading us into recession. Ever since Nixon famously proclaimed “We’re all Keynesians now”, the party system in America has changed from being a competition between fiscal responsibility and fiscal irresponsibility, to a contest of how to be the best and most effectively fiscally irresponsible.

Roosevelt as the first modern Democrat brought into the mainstream the idea of deficit spending to stimulate the economy and smoothen the business cycles. While this may or may not be an advantageous strategy when coupled with surplus savings in times of prosperity, this has (with one exception) never been the case, and is thus an unequivocally bad strategy with the end result of accruing an infinite national debt, the full faith and credit of whose government eventually collapses.

We can see the beginnings of this happening now: the higher the national debt grows, the greater the risk of default on payment. This is exactly the mechanism behind rising interest rates for bonds, setting the bar higher for other, relatively riskier private bonds, and choking out private investment. More immediately and tangibly, there was a deliberate and vocal lack of faith in the full faith and credit of the United States government when it tried to reassure investors that it would stand behind Fannie Mae and Freddie Mac and not let them fail. People didn’t buy it, continuing to sell stock until they collapsed, requiring the government to take on even more debt on their behalf.

Democratic administrations typically whittle away surpluses by giant spending programs – hence a record of higher economic growth under Democratic administrations. But these optimistic numbers belie the underlying truth that government spending is only a temporary stimulus, and can do nothing to effect long term economic growth or potential. What goes up must come down.

Republican administrations since Reagan, who instituted the largest tax cut in history, accomplish exactly the same end by different means. By cutting taxes rather than increasing spending, Republicans hope to put money in the hands of those who will invest it and build productivity, which does have an effect on long-term economic growth and potential. However, they do this at the government’s expense, which because of the aforementioned choking out effect cancels out any investment boost, making their endeavor perhaps more sensible, but even less effective than Democratic strategies.

Thusfar it looks like neither candidate has the willpower, or even inclination, to change this cycle. They both throw around terms like “fiscal responsibility”, or even occasionally make reference to balancing the budget, but never as more than secondary items, and continue to think in terms of economic stimulus. Secondary campaign promises never make it past a hostile Congress – and believe me, if history is any indication, Congress will be hostile. John McCain may pledge to end pork barrel spending, but he’s pledged even more strongly to cut taxes. Obama may believe in “trusting the market but correcting its excesses” (whether that even makes sense is a discussion for another day) and not leaving a bill for our children to foot, but in the end, he’s more interested in welfare and stimuli than real fiscal responsibility.