The Republican Line On The Economy

I don't agree with Mike Rosen's policy prescriptions for our nation's economy and even his factual assertions are wrong, but his column today is a succinct summary of the Republican party line on the matter from an advocate for the position rather than a straw man argument that I have created myself, so I'm noting it for future reference. I quote some highlights from the narrative below to convey the gist of the message:

[T]he heart of the problem [of state budget shortfalls] is the unsustainable level of government spending and indebtedness driven by a cornucopia of entitlement, health care and welfare programs, along with overly generous government employee payrolls and lavish pension plans that have dwarfed growth in private-sector compensation in recent years. Our federal government is also upside down financially, only with more zeroes at the end of the numbers. . . .

Overseas governments are in a similar pickle, and their citizens are doing something about it: They're revolting (double entendre intended). In France, labor unions and students have staged protests and general strikes, outraged over the government's perfectly reasonable proposal to raise the retirement age from 60 to 62. . . .[Western European countries] nations spend a much smaller share of their gross domestic product on defense than we do, and they're still going broke. This is about the inevitable collapse of the democratic socialist welfare state. In the name of "social justice," compassion knows no economic bounds. Well, the bounds are there whether or not democratic socialists know or care about them. In the prophetic words of Margaret Thatcher, "The problem with socialism is that eventually you run out of other people's money."

Our current spending levels exceed our practical tax capacity. No nation can tax itself rich. It can only produce itself rich. Excessive tax rates are the enemy of production and a barrier to the creation of societal wealth. You can soak the rich . . . and you still won't come up with nearly enough revenue to close this runaway spending gap. . . . The economic solution is obvious: Government must spend less — much less — on all kinds of things at the federal and state levels.

He closes by identifying his position with those of the Revolutionary War Americans.

Shorter version: Stop spending money to help poor people, stop taxing rich people, and pay civil servants less.

What's wrong with this analysis?

1. The federal deficit is mostly due to unfunded increases in defense spending and tax cuts, with rising health care costs as a secondary cost. Other welfare state spending has not increased and the American welfare state is one of the most miserly in the developed world.

2. The biggest culprits in state budget deficits are cyclical drops in revenue caused by an unprecedentedly deep recession and rising prison spending. Colorado is very close to the bottom nationally in its spending on P-12 education, higher education and other social programs. Medicaid doctors are getting paid far less than market rates. Both the state and federal government are underfunding our roads and bridges. We do not have a $1 billion shortfall in Colorado because Colorado is overspending on social services. We have a $1 billion shortfall because we have no rainy day fund (as TABOR basically insisted), and because we made permanent tax cuts during a temporary economic boom that inflated tax revenues.

3. The empirical evidence makes its unequivocally clear that low tax rates and tax cuts do not spur economic development. While correlation is not causation, you can't have causation without correlation and there is no correlation between low taxes or tax cuts and economic growth, indeed, to the extent that there is a relationship, higher taxes are associated empirically with stronger economic growth. The truth of the matter is that not buying enough government services is bad for the economy too. Goods and services aren't worthless to the economy just because the government writes the check, and the people who get government spending inject it into the economy again faster than the rich who get tax cuts.

4. The payroll cost of government pensions in Colorado is very close to the cost of Social Security (which they replace) and a typical private sector 401(k) plan. The benefits are generous compared to typical private sector retirement plans and Social Security combined, but only because the state treasurer has managed PERA funds better than the private sector alternative. More generally, the benefits at government jobs aren't nearly as sweet as Republicans would have you believe. The health insurance deal, for example, is typically about the same.

5. Government, in general, pays top executives and the senior managers who work for them far less than comparable private businesses do. Michael Bennet did not leave his job as a corporate lawyer to become Superintendent of the Denver Public Schools because the pay for the job was so good. The guy who is in charge of running the entire immigrations and customs enforcement office for the United States makes about the same amount of money as a typical owner of a single McDonald's franchise store, or a junior associate attorney at a Wall Street law firm. Midlevel government workers earn salaries similar to those of midlevel private sector workers. Workers at the bottom in government come out a bit better than their private sector counterparts in job security and compensation, but also perform consistently with quality work, and the differential isn't what is breaking the nation's government sector budgets.

But, Rosen has given you the GOP line, such as it is.