America’s era of free lunch policy is over

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The return of inflation for the first time in my lifetime also means the return of difficult short-term trade-offs in economic policy for the first time in the 21st century. To put it another way: the time for free lunch politics is over – and it’s the Republicans, even more so than the Democrats, who will have a hard time adapting.

When George W. Bush was president, it was common to hear Democrats complain about the irresponsibility of waging two wars while implementing two major tax breaks and an extension of Medicare benefits. But the alleged problems with Bush’s greatness were to arise in the future, when debt burdened our children and grandchildren. In the short term, at least financially, everything was fine. During Barack Obama’s presidency, the political hysteria about budget deficits reached a fever level, but the failure to address them never created problems in the real world. By the time of Donald Trump’s presidency, both parties had largely stopped worrying about trade-offs. Trump lowered taxes and raised spending, rejecting any reform of Social Security and Medicare.

Now, President Joe Biden avoids any rhetoric about fiscal responsibility and simply proposes new taxes to fund new spending. Although interest rates remain relatively low, inflation will put an end to this form of free lunch policy.

First, it is not clear how long interest rates can or will remain low – they will rise and the US Federal Reserve will continue to raise them for some time.

Beyond the green eye shadow aspect of it, the difficulty is that the U.S. economy is now limited by real resources. Policies such as student loan relief, which could have been a useful stimulus a few years ago, have become inflationary. Even tax cuts, unless offset by spending cuts that take money out of someone’s pocket, would boost inflation.

Similarly, new spending on social benefits that puts cash in your pockets will be inflationary unless it is taxed away elsewhere. While Biden a few years ago might have argued that his tough “Buy America” ​​regulations for infrastructure projects were necessary to create jobs, today there is a surplus of job openings.

To be clear: The strong labor market is a signature achievement for the Biden administration. But the nature of achievements is that once you have achieved them, you do not have to keep achieving them.

This administration, despite its other shortcomings, has cured a chronic shortage of demand that has plagued the United States for decades. Now it must turn from progressive dream landscapes and towards a universe of hard trade-offs. Deficit spending and protectionist regulations can no longer be justified as a stimulus – and it is not practical to fund programs by taxing billionaires’ wealth or unrealized capital gains.

In other words: spending more on one area will require less consumption on another. It can be done with taxation to reduce private consumption – it can even be done by taxing the rich – but the basis must be greater than the small groups that this kind of ideas are targeted at.

However, if the end of free lunch economy is bad news for the progressive left, it is worse news for Republicans.

Both former President Bill Clinton and Obama successfully practiced forms of austerity policies and dramatized for voters the trade-off between conservative tax policy and the stability and security of Medicare, Medicaid and Social Security. Bush’s political status imploded as he sought to privatize Social Security, and Trump’s efforts to renounce Medicaid also ended in tears.

In fact, Trump was fortunate to be president at a time when much of the establishment had erroneously concluded that the United States was in full employment. Under the circumstances, the mix he delivered – increased spending, lower taxes and more restrictions on trade and immigration – led to mostly good results. But implementing the same policies in today’s radically changed situation would be extremely devastating.

Still, rising Republican stars have come up with nothing better. Successful Republican governors like Florida’s Ron DeSantis and Virginia’s Glenn Youngkin practice free lunch policies – dampening their culture warriors with increases in school funding and teacher salaries. They can do so because, conversely, the Democrats’ U.S. bailout plan gave so much money to states and localities because of Republican objections.

Six years into the Trump era, however, there has been no new synthesis of economic thinking among Republicans, no meat on the populist bones. When the chairman of the National Republican Senate’s campaign committee, Rick Scott, decided to write down some political ideas, they were so politically toxic that Majority Leader Mitch McConnell has rejected them on every occasion.

Yet, everything former House Speaker Paul Ryan used to say about eligibility spending is still true. With the aging of the population, the price of keeping a constant set of Social Security, Medicare and Medicaid benefits in place increases over time. Post-Trump Republicans, meanwhile, are more married than ever to a political approach that requires higher spending on the military and related matters such as policing and border security.

Democrats actually have an answer to the question of how to pay for all that – raising taxes, mostly on rich people – even though they do not have a realistic strategy for a transformation of American society. But Republicans really do not have an answer. Ever since George HW Bush broke his promise of “no new taxes” and the party rebelled against him, the Conservative movement has been kissing with free lunch policy. Democrats have driven themselves to complain about intellectual dishonesty, but in practice, the economic situation has confirmed Republicans’ refusal to make responsible fiscal choices.

Those days are coming to an end. For now, that’s Joe Biden’s problem. But it is the GOP that has no solution.

More from Bloomberg Opinion:

• What Biden’s Dead-on-Arrival budget reveals: The editorial staff

• The big question: Is America heading for a debt crisis ?: Karl Smith

• Inflation brings back the K-shaped economy: Conor Sen

This column does not necessarily reflect the opinion of the editorial staff or Bloomberg LP and its owners.

Matthew Yglesias is a columnist for Bloomberg Opinion and writes the Slow Boring blog and newsletter. A co-founder and former columnist for Vox, he is also the author, most recently, of “One Billion Americans.”

More stories like this are available at bloomberg.com/opinion

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