2010 December 29 Wednesday
Republicans And Democrats Play Game Of Chicken?

Megan McArdle suspects both political parties will not face up to the need to balance the budget until the system reaches a crisis. (my bold emphasis added)

I assume that at some level, Republicans understand that cutting taxes will make it that much more wrenching when we finally have to cut the deficit.  I assume that at some level, Democrats knew that passing the health care bill would make it harder to balance the budget, because we used up the easiest, most obvious tax increases and spending cuts on expanding health care coverage, instead of using them to bring revenues and spending into roughly the same ballpark.  But I think they view this as a way to improve their initial position in the final showdown, meaning that overall, we'll end up with [lower taxes/higher spending] than we would if they just left well enough alone.

Despite Ross Douthat's optimism, I am very much afraid that this we are headed for a terrible crash. Game theorists tell us that the way to win a game of chicken is to make a highly credible committment: rip off the steering wheel, and throw it out the window.  They do not tell us what to do once you have thrown it--only to realize, in horror, that the guy in the other car has just done the same thing.

I hold this view as well. Watching state-level fiscal crises get far worse than I originally expected (not just California - but also Illinois, New Jersey, and others) I no longer think the center is big enough or either party dominant enough to force thru a compromise. At the federal level we will have to reach a point where the markets begin to price US debt as highly risky before both big spending cuts and big tax increases become feasible. Absent need to stop a panic I do not expect anything resembling fiscal sobriety. An irrational faith in American exceptionalism has combined with political divisions to make it impossible to admit to our limits.

Update The rise in spending which led us to this crisis was caused in part by giving women the vote.

This paper examines the growth of government during this century as a result of giving women the right to vote. Using cross-sectional time-series data for 18701940, we examine state government expenditures and revenue as well as voting by U.S. House and Senate state delegations and the passage of a wide range of different state laws. Suffrage coincided with immediate increases in state government expenditures and revenue and more liberal voting patterns for federal representatives, and these effects continued growing over time as more women took advantage of the franchise. Contrary to many recent suggestions, the gender gap is not something that has arisen since the 1970s, and it helps explain why American government started growing when it did.

The welfare state that women vote for feeds the rise in divorces. Women initiate most (somewhere between two thirds and three quarters) of all divorces. They'd be far less likely to file for divorce if the state did not help them out with social programs. So more social programs lead to more divorce which translates into more support for social programs. Meanwhile, the married people and the singles without children pay more taxes to support those with unstable relationships. Part of the stand-off between tax increasers and spending cutters is a fight over marriage and social obligations. I am on the side of spending cutters because I do not want to pay to raise the children of others.

Share |      By Randall Parker at 2010 December 29 07:26 PM  Economics Sovereign Crises


Comments
bbartlog said at December 30, 2010 7:00 AM:

They will not balance the budget, *ever*. At least not so long as it's denominated in a currency they can print. It's within the realm of possibility that they will reach a stable level of deficit spending, financed by the printing of money (and thus by inflation), but I'm skeptical that this situation can be maintained given the worldwide use of the dollar. It's hard to imagine it devaluating smoothly rather than having it get suddenly dumped, and smooth devaluation is more or less what you'd want in order for the federal government to operate this way.
As for 'a terrible crash', well... define 'terrible'. I think the monetary system will collapse, whether suddenly or by controlled demolition I can't say. But look: we still have a vast stock of real capital - land and rails, electrical grid, network, fiber, factories, and on and on, not to mention people that know how to use, repair, and if necessary build them anew. In places where human capital is thin on the ground I can imagine parts of the US (*cough* SoCal *cough*) turning into something like Mexico, but for the most part I expect something more like 1970s Britain. If nothing else the monstrous food production of the US will help keep a minimum of social order.
There are other countries which are far closer to the Malthusian limit, like India, where I wonder what will happen when food supplies are suddenly disrupted.

no i don't said at December 30, 2010 2:46 PM:

Who cares about Reps or Dems while we now live in a plutarchy, in a fascism.

Captain Jack Aubrey said at January 2, 2011 1:47 PM:

Women initiate most (somewhere between two thirds and three quarters) of all divorces. They'd be far less likely to file for divorce if the state did not help them out with social programs.

Does this drive consumer debt, as well - men needing to keep their women happy do so by maxing out the credit card? Retail does seem to skew towards feminine desires...

Whatever happens, it seems that so many of our past "solutions" have become problems in their own right, like kudzu. Welfare handouts create labor shortages where there should be none; bringing in immigrants to solve the non-existent labor shortage drives down wages and increases the need for expensive new infrastructure; making personal credit and home loans cheap and easy facilitates unjustified price increases and massive trade deficits; various non-discrimination laws create the need for expensive workarounds, like the higher education bubble, etc., etc., etc.

Anyway, rather than eliminating women's suffrage, which will never happen, I'm more in favor of another voting reform that will never happen: the creation of an equity-based system of voting, based on the idea that while every adult citizen deserves a say in his government, not all citizens deserve an equal say. Military vets, native born citizens, any parent of one of more minor children, financially independent citizens (i.e., people not on welfare), and people who can demonstrate knowledge of basic civics deserve more say than others. While it would not explicitly disadvantage women, it would disadvantage the most statist citizens.


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