Want to Cut Public Debt? Bring in the Leftists!

A column by Doug Saunders, The Globe and Mail, July 25

In Greece, it took a very left-wing government to cut public spending, slash the size of the public service and reduce a government debt load that had begun to rise fast under conservatives a decade earlier. “We must all adapt ourselves to this new situation,” Prime Minister Alexis Tsipras told the members of his far-left Syriza coalition as he successfully persuaded them to vote in a second round of reforms this week.

In France, it has taken a Socialist Party government to break open a paralyzed and over-regulated economy in an effort to bring back growth and fiscal order. Prime Minister Manuel Valls, after an economically disappointing start, instructed Economy Minister Emmanuel Macron, a former Wall Street banker, last year to redesign the economy. This month, after tortured debate, parliament passed the 400-article “Macron Bill,” which deregulates many sectors, allows competition, cuts public spending and even introduces Sunday shopping – things that two decades of mainly conservative governments were unable to touch.

In the United States, it has taken a Democratic president to get the fiscal house in order. After George W. Bush’s lofty spending and lavish tax cuts sent public debt soaring (even before the 2008 crisis), under Barack Obama the size of the debt began to fall in 2013 – in large part because under his watch government spending has risen by only 1.4 per cent (in part because new programs such as Obamacare cost taxpayers less), compared with an 8.1-per-cent increase under Mr. Bush and 8.7 per cent in Ronald Reagan’s first term.

We have entered the age of the austerity left.

Meanwhile, conservative governments are faring less well. Britain’s Tories have been unable to get public debt under control after triggering a second recession with their post-2011 policies.

Their Canadian counterparts, whose signature policies involve handing billions in cheques to voters and removing large tranches of revenue permanently from the public purse, have not managed to reduce the size of the public or private debt, despite some big program cuts.

Right-wing governments are simply not faring well as fiscal stewards.

Has the world turned upside down? Not really. It’s just more evidence of a well-established trend. Since the early 1980s, in much of the Western world, liberal and social-democratic parties have been entrusted to clean up the fiscal and spending messes created by conservative regimes.

In the United States, Mr. Reagan managed to increase debt, government spending and even (ironically) taxes; it took Bill Clinton’s less state-heavy economics to send debt plummeting, until Mr. Bush repeated the pattern.

In Britain, Conservative debt became a problem in the mid-1990s, when the Labour Party under Tony Blair and Gordon Brown used strict fiscal discipline to keep debt below 40 per cent of gross domestic product for a decade, until the 2008 crisis forced all governments to spend.

In Canada, Brian Mulroney’s Tories pushed spending and debt to record-breaking levels, precipitating a world-scale crisis that Liberals Jean Chrétien and Paul Martin finally faced down with aggressive program cuts. On top of this, analyses show that over the 30 years from 1981 to 2011, the Canadian governments most likely to have balanced budgets, and those with the lowest deficits, were provincial NDP regimes.

This has tangible effects: after analyzing 12 Western countries, economist Douglas A. Hibbs found that “the unemployment rate has been driven downward by Democratic and Labour administrations and upward by Republican and Conservative governments.”

This seems to go against not only our expectations, but against the stated values of many of these parties (Syriza was elected to end austerity and leading economists recommended it reject the European reforms). So why is the left repeatedly more fiscally sensible than the right?

One answer, in an analysis of 40 years of Western governments by economist Jose Tavares, is that this is how parties get elected, by playing against type: Right-wingers gain power only if they pledge both spending programs and tax cuts; voters won’t trust liberals unless they show fiscal restraint. This sort of triangulation has become core to the thinking of the more successful major political parties.

But there is a larger explanation, found in the balance sheets. “Tax-and-spend liberals” is a fair description of much of the centre-left. Right-wing parties generally scorn the tax half of this equation – but they can’t do much about the spending half. It is loss of tax revenues that has both sent debt soaring and choked off economic growth in the United States in the 2000s, and Canada and Britain now. To get the wheels of capitalism turning again, it may require another bunch of leftists.

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