New York Times: The Magic Lever
… These three groups — bankers, Democratic Keynesians and staunch Republicans — have one thing in common: They all believe they have identified the magic lever. They believe they can control their economic fate.
Some of us do not believe there is a magic lever. Deficit spending stimulates growth, but not by that much. Tax increases are bad, but they are not disastrous. We believe that there are a thousand factors that go into economic growth, and no single one is dispositive.
We look at the tax cuts of 2001 and do not see tremendous gains. We look at the tax increase of 1982 and do not see a ruinous disaster. We look at high deficit eras and low deficit eras and do not see an easy correlation between deficit spending and growth. On the contrary, if you look around the world there’s a slight negative correlation between government size and prosperity.
We believe that if you rest everything on a single lever (Increase deficits! Cut taxes!), you give people a permission slip to be self-indulgent. They will spend or cut to their hearts’ content and soon you’ll be facing national bankruptcy. We believe that even if you are theoretically right, your policies will be distorted by human frailties and special interests.
The people in my group (you might call us conservatives) are more likely to embrace a low and steady approach to fiscal policy. Control debt. Control entitlements. Keep tax levels reasonable and the tax code simple. Work on the economic fundamentals: human capital, productivity, labor market flexibility, open trade, saving and investment. Don’t believe you can use magic levers to manipulate growth month to month. …
That is pretty much my view, though I think cutting spending is the top priority.
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