Last month, I posed a rhetorical question: Whatever happened to fiscally prudent Republicans? The question deserves a proper answer. In the early 1990s the bipartisan, business-led Concord Coalition made the accumulated Reagan-Bush deficits a major public issue. George H.W. Bush had to break a pledge and raise taxes because of mounting concerns in financial markets. H. Ross Perot put the deficit center stage in the 1992 election, helping to defeat Bush I and elect Bill Clinton. He made fiscal responsibility his signature issue.
A decade later, Republican deficit hawks have all but vanished. "It's pretty astonishing," I was told by Robert L. Bixby, executive director of the Concord Coalition. "We used to get a lot of Democrats saying: 'You're just a Republican front group.' Now it's almost the reverse. The change in the Republican Party has been astounding." Are we on the record? I asked. "Absolutely," he replied. "The Republicans are now the ones making excuses for big deficits."
The indefatigable Peter G. Peterson, a coalition mainstay, has become the remnant of an endangered species -- the fiscally responsible Republican. He has just a few allies in Congress, such as Senators John McCain (R-Ariz.), Olympia J. Snowe (R-Me.), and, on a good day, Finance Committee Chairman Charles E. Grassley (R-Iowa).
HOW DID THIS SHIFT HAPPEN? Conversations with more than a dozen senior business leaders, including board members of the Concord Coalition, point to this progression: Since Ronald Reagan, a majority of Republican politicians have gradually come to conclude, as Vice-President Dick Cheney famously told former Treasury Secretary Paul H. O'Neill, that "deficits don't matter." What's interesting and alarming, however, is that different Republican factions believe deficits don't matter for opposite and incompatible reasons.
Supply-siders believe deficits don't matter because tax cuts so boost investment and productivity that the economy grows its way out of debt. The opposite, "starve the beast" faction, epitomized by tax tactician Grover Norquist, hope tax cuts will indeed create deep deficits that will then force spending cuts. But both things can't be true.
Under George W. Bush, the merry ideology calls for tax cuts in all seasons for all reasons. Spending has increased faster than under Clinton, and deficits have ballooned, yet tax cutting marches on. This privately scares many Republican business leaders. But very few are speaking out, either because they don't want to burn bridges to the White House or because they are too pleased with their tax cuts.
There is one other group worth noting. A decade ago fiscally conservative Democrats, mostly Southern, often worked with Republicans to serve as a brake on fiscal excess. The near-extinction of Democrats in the mold of former senators Sam Nunn, Paul Tsongas, Fritz Hollings, and Representative Charles Stenholm, who was gerrymandered out of a job, has removed a crucial legislative counterweight to Republican recklessness. The days of bipartisan budget caps and pay-as-you-go rules are over. "Moments like the balanced-budget provision of Newt Gingrich's Contract with America were aberrational," says Steven Rattner, an influential Wall Street Democrat on the Concord Coalition board.
Inside the Administration, former deficit hawks have trimmed their views. Three senior economic officials are all men once well-known in private life as deficit critics. Stephen Friedman, who is stepping down as head of the President's economic council, was a Concord Coalition leader. Chief economist N. Gregory Mankiw, whose textbook correlates big deficits with higher interest rates, is leaving. Treasury Secretary John W. Snow, who once spoke out against fiscal imbalances, is keeping his job, barely.
Two factors could provoke Republican opposition to fiscal irresponsibility. The first is the risk of a dollar crash, directly related to big deficits. The second is the White House plan to borrow an additional $2 trillion to finance Social Security privatization. The Administration story is that borrowing $2 trillion in the short run will save the system up to $11 trillion in unfunded liabilities over the next 75 years. The problem is that the supposed shortfall is hypothetical, while $2 trillion of additional borrowing will affect real money markets now.
"I remain a Republican," Pete Peterson said, "but the Republicans have become a far more theological, faith-directed party, not troubling with evidence."
Robert Kuttner is co-editor of The American Prospect (email@example.com).
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