Grover Norquist's Stage One Thinking
In the opening chapter of Applied Economics, economist Thomas Sowell decries our tendency to look only at the intended goals of public policy rather than its unintended consequences:
The point here is not simply that various policies may fail to achieve their purposes. The more fundamental point is that we need to know the actual characteristics of the process set in motion -- and the incentives and constraints inherent in such characteristics -- rather than judging these processes by their goals. Many of the much discussed "unintended consequences" of polices and programs would have been foreseeable from the outset if these processes had been analyzed in terms of the incentives and constraints they created, instead of in terms of the desirability of the goals they proclaimed. Once we start thinking in terms of the chain of events set in motion by particular policies -- and following the chain of events beyond stage one -- the world begins to look very different.
Liberals are famously guilty of this kind of short-sightedness. Health insurance mandates get more people insured, but overload the medical system when thousands of new customers try to get care; generous housing incentives during a boom cycle lead to massive foreclosure rates during a bust; price controls make products affordable in the short term, but destroy markets in the long term. The road to Hell is paved with good, liberal intentions.
But as Ricochteer Conor Friedersdorf argues over on the Atlantic, Grover Norquist of Americans for Tax Reform is a perfect example of how liberals aren't the only culprits. While no one could possibly question Norquist's goals, Friedersdorf offers a powerful argument against his chosen method of a no-new-taxes pledge:
What Norquist doesn't understand or won't admit is that deficit spending is worse than a tax increase, because you've got to pay for it eventually anyway, with interest. Meanwhile, you've created in the public mind the illusion that the level of government services they're consuming is cheaper and less burdensome than is in fact the case. If you hold the line on taxes but not the deficit, you're making big government more palatable.
Back in 1986, if taxes had been raised every time federal spending had increased, and voters knew that taxes would go up again every time new federal programs or spending was passed, the backlash against big government that we're seeing now would've started a lot sooner, and been much more broad-based. Had that been the policy, it's doubtful that George W. Bush would've passed Medicare Part D. Instead, the Baby Boomers have borrowed a bunch of money that my generation and my children's generation is going to have to pay back. But their taxes didn't go up. Thanks for that, Mr. Norquist. I'm not sure what to call it, but fiscal conservatism isn't it.
I can't find any way to disagree, though I'd be curious to hear what others on Ricochet think. Also, are there other examples of conservative stage one thinking?
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Comments:
Sep '10
Re: Grover Norquist's Stage One Thinking
I posted this on another "why not raise taxes?" thread yesterday. It needs to be repeated over, and over, and over again...
According to the Office of Management and Budget, over the last 60 years, government revenues as a percentage of GDP have exceeded 20% exactly once. One time. No matter what formula you create for marginal rates, corporate rates, capital gains rates, payroll tax rates, etc. etc. etc. the answer comes out to about 18% of GDP in revenues. Prior to the Fall 2008 financial crisis, our revenues were roughly 18% of GDP.
We are now spending about 25% of GDP on governement stuff.
You do the math.
May '10
Re: Grover Norquist's Stage One Thinking
But as Ricochteer Conor Friedersdorf argues over on the Atlantic...
Back in 1986, if taxes had been raised every time federal spending had increased, and voters knew that taxes would go up again every time new federal programs or spending was passed, the backlash against big government that we're seeing now would've started a lot sooner, and been much more broad-based.
Every administration since FDR has increased both spending and taxation. Where was the backlash?
Sep '10
Re: Grover Norquist's Stage One Thinking
I don’t want to defend Norquist, but taxes did go up in the 80”s. Have you forgotten Republican Bob Doles’ S.S. tax increase? You can argue if the money was spent or placed in a lock box, but it is clear the taxes collected were used to mask the size of the deficit. I believe the premise of the argument is based on politicians being honest with the voters. Good luck with that! At least Norquist seems to realize you cannot trust them.
Sep '10
Re: Grover Norquist's Stage One Thinking
That would be true if the tax burden was spread out and less progressive.
People who are wage earners have their taxes taken out before they even see the money, and half their SS taxes are contributed by their employer which is another semi-invisible tax.
Something like 49% of Americans don't pay any taxes at all. On top of that, a disproportionate number of taxpayers are already voting Republican. With these facts in mind, it is pretty easy to conclude that government will only become "more unpalatable" to people who are already voting against more spending and therefore nothing would have changed or will change.
While it may be true that deficit spending is worse than tax increases, the two aren't connected.You can have tax increases that won't help drive down the deficit because of spending, as we have had in the past.
However difficult it has been for politicians to raise taxes, it has been exponentially more difficult to cut spending.
On the contrary, the fact that so many pretend that new taxes can be part of the cure gives them the illusion that they can spend more and eventually force a tax hike.
Sep '10
Re: Grover Norquist's Stage One Thinking
The fact remains that spending has always gone up faster than tax increases, and everyone knows we can't possibly tax our way out of this spending addiction, even if we can stop increasing spending, we would do well to wait for the private sector to recover and increased revenues would come with a rising GDP.
We know we can raise taxes. Can we cut spending? If we can't cut spending then it's doomsday for us all. That is where the focus needs to be. That is the area which requires effort and political will. Why the red herring?
The Democrats want to make this, like everything else, a political fight. The premise - "shared sacrifice". But we taxpayers ARE sacrificing, and taking money from our employers ( how many of us in the private sector are employed by a millionaire? ) hurts us little guys too and it hurts the businesses we work for, meanwhile our taxes are too high and we aren't getting anything substantial from the government. In fact, hard workers and innovators are soon to lose the tens of thousands they have paid into SS due to means testing. We get nothing from this government.
Sep '10
Re: Grover Norquist's Stage One Thinking
We all get too wrapped up in tax rates instead of the overall effects. Lower marginal rates and less progressivity are positive incentives to produce but there is more to it than that. The '86 tax act lowered marginal rates and that was a good thing but it was a big tax increase to real estate and oi and gas syndicators who had financed many projects via the perverse incentives built into the tax code. It eventually contributed to the S&L crisis. Social engineering is bad because it doesn't work no matter whether its done through the tax code or by spending. Look at the subsidy of various agricultural projects especially ethanol. The government takes from the many and gives to the few in a variety of ways and they probably always will because that is how they get re-elected but we have to limit them as best we can.
Jan '11
Re: Grover Norquist's Stage One Thinking
Aaron Miller
But as Ricochteer Conor Friedersdorf argues over on the Atlantic...
Back in 1986, if taxes had been raised every time federal spending had increased, and voters knew that taxes would go up again every time new federal programs or spending was passed, the backlash against big government that we're seeing now would've started a lot sooner, and been much more broad-based.
Every administration since FDR has increased both spending and taxation. Where was the backlash? · Jul 22 at 8:31am
But not in a way that implied they were connected.
By way of analogy, I'm thinking of how people often keep closer tabs on their personal finances when using cash instead of credit cards. Just seeing the bills disappear from one's wallet is a powerful reminder that resources are finite and that purchases have costs. In the same way, immediate new taxes to cover new spending programs would have forced both Congress and the American public to see that government programs have costs.
Oct '10
Re: Grover Norquist's Stage One Thinking
The definition of stage one thinking could depend on the perceived likelihood of a given consequence, and the importance placed on the consequence.
A progressive might argue abortion bans are stage one thinking for simultaneously encouraging and criminalizing self abortion, increasing the number of poor, unwanted, neglected children who grow up to be criminals or welfare recipients. On the other hand, progressives engage in stage one thinking when they completely disregard the way abortion on demand devalues human life, motherhood, children, families, as well as reducing the native population to the point where mass immigration is required to sustain itself.
A progressive could then counter that mass immigration is better than native births because we can't control the birth rate at the source of the immigration, so abortions provide a better life for poor people who were going to exist regardless of the abortions.
A conservative could then counter that if emigration from the source country stopped, that country's citizens would confront, and solve, its problems rather than running from them.
The progressive would then call the conservative a racist.
May '10
Re: Grover Norquist's Stage One Thinking
Tom Meyer
By way of analogy, I'm thinking of how people often keep closer tabs on their personal finances when using cash instead of credit cards. Just seeing the bills disappear from one's wallet is a powerful reminder that resources are finite and that purchases have costs. In the same way, immediate new taxes to cover new spending programs would have forced both Congress and the American public to see that government programs have costs.
Agreed... if our tax system placed the burden on all taxpayers equally, which it does not.
Under our current tax system, taxation varies wildly from citizen to citizen even within the same income tax bracket. Do you own a business? Corporate tax. Do you drive a lot? Gas tax. Do you smoke? Cigarette tax. Has someone in your family died recently? Death tax. And on and on.
What you suggest might have been a good plan a century ago. We're way beyond that now. Our government is so bloated that we could cut programs and agencies for several decades to pay for any surprise expenses (like a war). Plenty of current obligations demand we start cutting now.
Oct '10
Re: Grover Norquist's Stage One Thinking
I agree...Norquist is guilty of stage one thinking. Fantastic insight.
And the pledge has been a colossal failure.
Oct '10
Re: Grover Norquist's Stage One Thinking
The pledge should have read - no new taxes and no new deficits.
May '10
Re: Grover Norquist's Stage One Thinking
Tom Meyer:
No, if taxes had been raised, spending would just have been raised more. There is some public appetite for debt, and we may (finally) be pushing the limits of it. Without the likes of Grover Norquist (who's essentially following Miton Friedman's advice to oppose all taxes everywhere at all times -- "starve the beast"), there's no reason to think we would have reached that limit.
If we raise taxes now, we just alleviate the problem of hitting the limit of our debt appetite. I don't want that problem to go away unless it's through spending cuts.
I had actually been meaning to post this question: Did "starve the beast" work? It seems to me, at long last, maybe it did.
On that, we can all agree.
Jun '10
Re: Grover Norquist's Stage One Thinking
I agree with the assessment of Norquist..
Tom Meyer cited the great Tom Sowell, whose analysis always comes down to trade-offs. If you think that way, your analysis becomes much clearer.
Example: We've created an ethanol industry, not based on its economic merits, but based on tax incentives (that average American companies don't get) and on government mandates. Result: economically inefficient and crappy fuel and higher food prices. Norquist gets himself all in a twist that we would do away with the tax incentives because that means a tax increase for the ethanol industry. He forgets to ask the question whether they should have had the incentive in the first place (NO!, and neither should renewable energy).
Thus, given the ability to get rid of a noxious tax incentive, if you can do it and create some tax relief elsewhere that's the best situation. But if you can't do both because of politics, getting rid of the incentives is better than the status quo.
I don't want general tax increases, but getting rid of discriminatory, idiotic tax incentives is better than doing nothing out of some false sense of ideological purity.
Apr '11
Re: Grover Norquist's Stage One Thinking
"Back in 1986, if taxes had been raised every time federal spending had increased, and voters knew that taxes would go up again every time new federal programs or spending was passed, the backlash against big government that we're seeing now would've started a lot sooner, and been much more broad-based."
Does anyone believe taxes for paying for those programs would be spread across the population evenly; the same people that think programs are paid by manna from heaven would not feel the bite of any tax increases, not directly.
The result would be less productiveness in the economy which would have simply been more pain, suffering, and debt sooner; the difference is Reagan and Republicans would've gotten the blame. The leftists would have a better foothold then they did have to impose socialism, without the benefit of the sustained growth from the Reagan era. Small government and a free market economy is the solution. Not more spending and higher taxes.
Oct '10
Re: Grover Norquist's Stage One Thinking
Most commentators here are making the common mistake that deficit spending isn't a tax. Deficit spending is a tax--on manufacturing. The process is simple:
This has been well-known ever since Reagan's deficits failed to spark massive inflation. Manufacturing always bears the burden of fiscal deficits. Private investment in production gets crowded out.
This is what spawned the post-financial crisis notion of "macro-prudential policy." Regulators want to spread the burden of adjustment over more than just manufacturing. But no one knows if it will work, and it will distort the markets.
Nothing beats a well-crafted balanced fiscal policy.
Oct '10
Re: Grover Norquist's Stage One Thinking
This reminds me of conservatives who support the gold standard. Fixed exchange rates require an incredible amount of government intervention--like so-called "incomes policies," where the government sets limits on wages--but people still pine for the purity of "money backed by gold" (of course, before paper money sovereigns had any number of ways to create money: clipping, alloys, that sort of thing).
Look at the alternative to balanced budgets I mentioned in my last comment: "macro-prudential policy" where regulators arbitrarily intervene in markets to desperately offset the effects of fiscal deficits. Is more regulation really the answer to fiscal deficits? Why not have less deficits?
Oct '10
Re: Grover Norquist's Stage One Thinking
I think both Grover Norquist and Conor Friedersdorf are wrong. While it is true that taxes at 18% to 19% of GDP have supported the historical growth of government spending, it did so only because GDP was growing fast enough to allow for manageable deficits. Under President Obama’s policies, GDP growth has stalled and spending has been increased to 24% to 25% of GDP. Norquist’s tax pledge is simplistic and poor policy. It doesn’t restrict the growth of government, and an interesting article by Donald Marron in the current of National Affairs persuasively argues that many exemptions and credits in the tax code are in fact spending not counted in the budget. He estimates we are spending another 4% to 5% of GDP on this disguised spending. There is also no budget item to fund unfunded entitlements. Freidersdorf is wrong because almost 50% of the population pays no federal income tax. I always come back to the Ryan plan because it is the only one that caps spending, reforms entitlements, reorients the tax code, and grows GDP. It provides the basic framework to address our financial problem. Proposed policy changes should fall into one of those categories.
Jun '10
Re: Grover Norquist's Stage One Thinking
This is total BS. Make the government smaller. It is the only solution. You could tax all of the annual income of all of our millionaires and billionaires and you get 900 billion, leaving a deficit of 800 billion (they already are paying 300 billion). But if their taxes are higher will they alter their behavior? You betcha. Raise that deficit back to about 1.2 trillion. But wait, what about the economy? It shoots craps. Raise that deficit back to it's original 1.4 trillion and then some. It's the spending, stupid. Certainly, if for every spending bill, Congress would have to pass a corresponding tax increase for everyone, there would be a lot less spending without a No New Tax pledge. So where's that law? The only thing close to it is the new Cut , Cap, and Balance. The fact is these Congressmen will never hold themselves to standards of behavior of reasonable prudence because they use our money to buy votes for themselves.
Sep '10
Re: Grover Norquist's Stage One Thinking
There is an old joke. Perhaps you've heard it:
"When you owe your bank $1,000 you have a problem. When you owe your bank $1,000,000 your bank has a problem."
Deficit spending means that, eventually, the US financiers have a problem. And they are considerably more focused and forceful in bringing attention to the matter. The lonely US taxpayer though, like a rower in an ancient Greek trireme, has too little influence over the helmsman to better his lot through elections.
The captain of the US trireme thinks that we need to add more trireme rowers immediately, in exchange for less ambitious expeditions, someday. The rowers no longer believe him and want this modern day Sicilian expedition turned around now and returned to dry land from the choppy and gloomy waters of high deficits, high unemployment and high fuel prices.
The ship of state has hit some big rocks; the rowers think the largest rocks are in the fevered mind of the captain.
Apr '11
Re: Grover Norquist's Stage One Thinking
Re comment #1, see also Hauser's Law.
Edited on July 24, 2011 at 12:14am