I agree with what Amity Shlaes of the Council on Foreign Relations wrote recently, about the immediate future: the pressure is now on for even more deficit reduction. But her rosy view of Newt Gingrich and the 1990s leaves a lot out.
First, wind back the clock to the summer of 1993, when Bill Clinton was a new president and the Democrats had control of Congress. Building on the historic budget deal that President George H.W. Bush completed in 1990 (Republicans hated it because he went back on his “read my lips” pledge, but it began a decade of fiscal responsibility), Clinton fought for his own budget. It included tax increases to bring down the deficit.
Nearly every Republican voted against it, with Gingrich and Senator Bob Dole, among others, arguing that it would sap the will to save and invest and send the economy into a recession. The bill passed by one vote in the Senate.
Here we had the clearest possible historical test of whether tax increases on the wealthy were “job killers.” The parties were in roughly the same positions as today and the economy would render a verdict on which worldview was correct.
We all know what happened next — one of the greatest economic booms in history. Did Clinton’s tax increases cause the boom? Of course not. It was largely the product of technological change beyond the control of any president. But his tax increases helped by giving new confidence to the bond market that the U.S. was on a path to getting its deficit under control. Like Republican presidents (an irony he noted) dating back 100 years, Clinton knew that tax hikes were a small price to pay for fiscal responsibility.
Gingrich and the Republicans were slam-dunked by economic history. Tax rates went up to the same level that Democrats want today — a level that Republicans, against all evidence, say would crush the economy. It’s true that raising taxes right now in the middle of a downturn is a bad idea, but doing so in combination with spending cuts (yes, a “balanced approach”) after the economy recovers would, as in 1993, send the right message to the markets about seriousness in cutting the deficit.
Gingrich became speaker in January of 1995, when voters felt Clinton had overreached on health care, gun control and “midnight basketball” (a Republican slur that captured resentment against programs for the poor). Gingrich then quickly overreached in the other direction by forcing a government shutdown, and was finished as an effective leader within 18 months.
It’s true that Gingrich kept the pressure up for a balanced budget, which was useful in preventing Clinton from over-spending. But this counter-force was the product of a Republican House, not Newt in particular. So beyond giving him credit for the 1994 Republican electoral success (which he deserves), it’s hard to see where Gingrich’s often petulant behavior yielded victories on the budget.
I do give him partial credit on welfare reform. Clinton kept vetoing the welfare bills sent to him until, with the 1996 election approaching, he finally signed one over the objections of more than half of the Democratic Party. The pro-reform Democrats and the Republicans deserve credit for that legislation, which turned out better than even its most optimistic supporters anticipated.
But the subtext of Amity’s post is that McConnell and House Speaker John Boehner should have asked for even more in the debt-ceiling deal — and if they didn’t get it, let default come, as the government shutdown came. Well, a shutdown and a default are different events, with the latter far more serious for the global economy.
And she underestimates the political damage that strategy would have done to the Republican brand, as McConnell understood. Had Republicans “pulled a Newt” and gone over the cliff, Obama would have won in a landslide in 2012 and the House would have gone to the Democrats.
Then we’d get their version of deficit reduction, which Amity, I suspect, would loathe.