Are Republicans Turning Keynesian?


With the election over, all attention is now being directed at the fiscal cliff. Basically, at the beginning of 2013 a series of tax cuts are set to expire like the payroll tax break and the Bush tax cuts. Along with the expiring tax cuts is a slew of mandatory spending cuts.  Both parties agree this could throw the country back into a recession. Both parties agree this contraction in spending will hurt the economy. And both parties agree this is something we need to avoid.

Before I continue, I’d like to rewind the clock a couple of years back to when Republicans took control of the House. In 2010 a Republican wave swept into Congress and changed the national dialogue from economic recovery to deficit reduction. They made the national debt and deficit the central issue. They claimed that addressing the nation’s spending problem would put us on a ‘path to prosperity.’  The story went something like this: We have to stop the reckless spending in order to restore confidence in the markets, this will in turn lead to an increase in investment, and we will then see a robust recovery. In economics this is known as expansionary austerity i.e. Europe’s recovery plan.

Now, fast-forward to today where the Republicans could get everything they wanted back in 2010 by simply doing nothing. If Republicans truly bought their argument that government was spending too much money, and the best way to improve the economy was to cut spending then Republicans should be more than willing to drive right off the fiscal cliff. The expiring tax breaks combined with the mandatory cuts would reduce government spending by over $700 billion just in 2013 (5.1% of GDP). The deficit hawks of 2010 should be drooling over this, but instead of embracing the fiscal cliff, Republicans agree with Democrats that this is an issue that needs to be addressed.

So, back in 2010 Republicans believed government spending was the problem and needed to be reined in, but now Republicans are arguing that cutting government spending will throw the economy back into a recession. Essentially saying that not only can government spending be helpful, but cutting it would be hurtful. The Republicans have officially becomes Keynesians!

So what happened?

Is the Republican Party really changing? No. Although Republicans talk about being fiscally conservative, and talk even louder about solving the ‘debt crisis’ – they really don’t care about the debt. The poster child of fiscal conservatism, Paul Ryan, devised a plan that would take over two decades to balance the budget.

What’s going on in the Republican Party is much more cynical. They are using the guise of fiscal responsibility in order to advance their agenda of changing the role of government. They believe in a minimalist government. Not one that actually tackles the debt problem, but one that cuts taxes for the wealthiest Americans and sets up a system for the rich to get richer, the poor to get poorer, and the middle-class to disappear. They envision an Ayn Rand world where government has no responsibility to take care of the less advantaged. Hence the reason why the Ryan Plan cuts Medicare, and makes even deeper cuts to Medicaid. And why the vast majority of the savings in the plan comes not from bloated defense spending, or slight tax increases on the top two percent of earners, but rather to programs that benefit the poor and the needy.

You may agree with this. You may think government should let everyone fend for themselves – but don’t be fooled into thinking this is fiscal responsibility. Don’t be fooled into thinking the only way we can balance our budget is on the backs of poor by cutting the programs on which they rely. And don’t be fooled into thinking that giving the ‘job creators’ more money will somehow lead to prosperity.

Republicans are not the party of deficit hawks or fiscal conservatives (which is why they don’t want us to go off the fiscal cliff). They are the Party that wants to fundamentally change the role of government in the economy. A role that no longer helps the most disadvantaged in society, but one that caters to the most advantaged

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