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Mankiw’s Strange Advice

By Matthew Yglesias on January 2, 2011 at 6:29 pm

"Mankiw’s Strange Advice"

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Based on his experience as a Republican Party operative, Greg Mankiw is in fact well-positioned to give Barack Obama advice on how to reach compromise with Republican Party politicians. But based on his track-record as a Republican Party operative, Greg Mankiw is also the kind of guy who might engage in dishonest propaganda activities designed to make Republican Party politicians look good and their opponents look bad. His advice column seems clearly geared toward priority number two:

But now it is time to pivot and address the long-term fiscal problem. In last year’s proposed budget, you projected a rising debt-to-G.D.P. ratio for as far as the eye can see. That is not sustainable. Conservatives believe that if the nation credibly addresses this long-term problem, such a change will bolster confidence and have positive short-run effects as well.

It may or may not be the case that addressing the long-term fiscal problem is a good idea. But there’s no reason to believe this is a viable basis for a political compromise. Consider:

  • When budget surpluses were projected 10 years ago, this was described by Republicans as a policy problem to be solved by tax cuts.
  • When Republicans controlled the government, they consistently acted to make deficits larger.
  • Republicans opposed the deficit-reducing Affordable Care Act.
  • Republicans opposed the deficit-reducing American Climate and Energy Security Act.
  • Republicans opposed the deficit-reducing DREAM Act.
  • When Barack Obama proposed some deficit-increasing tax cuts, Republicans insisted that they would go along if and only if he added additional deficit increasing tax cuts.
  • Republicans are planning to replace deficit-mitigating PAYGO rules with deficit increasing CUTGO rules.

Note that this is not a new development. There was a major battle within the Republican Party in the 1970s between a moderate faction associated with Dwight Eisenhower and Gerald Ford and a conservative faction associated with Ronald Reagan. One key issue at that time was whether the focus should be on deficits or on low tax rates for rich people. And the conservatives won the battle. That’s why since 1980, the more conservatives you elect the bigger the deficit you get.

Rather than listening to Mankiw, my advice to Obama would be to take the lessons of history seriously. Republicans are deeply interested in lower tax rates on high-income individuals. There may or may not be other things they care about on some level, but the party’s level of concern about all other issues pales in comparison to its level of concern about lowering tax rates on high-income individuals. Policy compromises, if they’re reached, are overwhelmingly likely to involve Obama agreeing to lower tax rates on high-income individuals in exchange for Republicans agreeing to something else. That “something else” might entail net deficit reduction (as in the 1997 budget deal) or net deficit increases (as in the 2010 tax deal) depending on what it is Obama wants to ask for. But what Republicans want is lower tax rates on high-income people.

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