Politics & Policy

Välkommen, Senator McConnell

Senate Majority Leader Mitch McConnell at a Capitol Hill press conference, December 2017. (Reuters photo: Aaron P. Bernstein)
Republicans are becoming the party of low regulation but high spending.

Republicans have more or less abandoned their commitment to fiscal restraint — the recent Senate budget deal is only one more piece of evidence for that.

Cynics and Democratic partisans will say that that commitment was never more than rhetorical to begin with, but that isn’t true. Of course the goal of fiscal sobriety was pursued imperfectly (it is easier for an elected official to spend than to tax), but the Republican commitment to lower spending in principle — which was an aspect of the Republican commitment to smaller government in principle — was genuine.

That line of thinking is changing in the current populist moment, and that fact is significant. Republicans are preparing to ease up on statutory budget controls, and President Donald Trump has made it clear since the earliest days of his campaign that unpopular and difficult projects such as entitlement reform are off the table. Instead, the GOP is pursuing its small-government goals through regulatory reform: Scott Pruitt’s efforts at EPA, Mick Mulvaney’s work at CFPB, etc.

Which is to say, the Republicans are moving from being a low-spending/low-regulation party to being a high-spending/low-regulation party.

Cherry-picking is a favorite pastime among ideologues, and, irrespective of your place on the ideological spectrum, it is easy to find examples of policies implemented abroad that coincided with desirable outcomes. Libertarians point to the dramatic economic transformations of places such as Hong Kong as examples of the wondrous powers of benevolent neglect and free markets, while progressives point to comfortable and thriving societies such as those in Sweden and Germany as evidence that high taxes and a big welfare state are perfectly compatible with economic success. (Our socialist friends often mistake the Swedish or Norwegian models for socialism, i.e., central planning, which they are not.) That such cherry-picking is so easy regardless of the point one is trying to illustrate should alert us to the limits of its usefulness. But it is not without some value.

Assume for the sake of argument that the Republicans not only continue moving in a high-spending/low-regulation direction but that they also are successful in moving public policy in that direction. What might that mean for the United States? If we take the United States as a baseline for regulation and spending, what examples for comparison might we come up with? Here are some possibilities:

Higher-spending/higher-regulation: Austria

Higher-spending/lower-regulation: Sweden

Lower-spending/higher-regulation: Switzerland

Lower-spending/lower-regulation: Australia

In making these comparisons, I relied on the Heritage Foundation’s economic-freedom rankings for total government spending as a share of GDP and for what Heritage calls “business freedom,” which it quantifies through measuring things like how long it takes to get a business license, how many procedures are required to start a new business, how much those procedures cost, etc. There are other components in Heritage’s overall economic-freedom calculation (e.g., labor freedom, which is determined in part by calculating the “ratio of minimum wage to the average value added per worker”), but the criteria in business freedom seemed to me a better stand-in for business regulation as such.

From this point of view, then, the current Trump-McConnell-Ryan model of Republican economic policy would seem to be moving the United States in a Swedish direction, which would come as a surprise to many of the Trump administration’s progressive critics. It would come as less of a surprise to Trump’s critics on the right, or to those more familiar with the actual ideological orientation of our current right-wing populists and the so-called alt-right allied with the Trump movement. They are “welfare chauvinists” who combine their support for the welfare state, anti-trade policies, etc., with an exclusionary politics focused variously on immigrants (as it is in the United States and the United Kingdom) or on more malicious versions of ethnic or religious minorities. (The Germans still shout “Germany for the Germans!” while Swiss nationalists wink and boast of representing “Swiss quality.”) The alt-right’s rejection of Anglo-American classical liberalism for a more European blood-and-soil-and-welfare conservatism is what distinguishes it from the traditional American Right, which historically has proposed to move the United States in a more Australian direction of lower spending and lower regulation.

To round things out, this matrix would have made the Obama administration operationally Swiss, at least on the crucial matter of health care (the architects of the Affordable Care Act in fact tried to replicate many aspects of the Swiss system and cited it), while the current Democratic party at large is more Austrian (don’t tell the Mises Institute!) even as its rhetoric has vacillated in recent years between Hugo Chávez and Huey Long.

The problem, as Barack Obama et al. demonstrated in spectacular fashion with the Affordable Care Act, is that trying to graft the policies of one country onto another often runs dead into the fact that different countries are, in fact, different. That’s the problem with cherry-picking to begin with: Sure, Democrats may like the Swiss health-care system, but if you proposed adopting a Swiss regime for capital-gains taxes (or its national minimum wage of there isn’t one), they’d go shrieking through the streets of Berkeley with their hair on fire. And, yes, the good people of Sudan enjoy a very low personal income tax rate in between massacres.

Among successful and prosperous countries, you’ll see a great deal of variation in government spending as a share of GDP.

But have a look again at those Heritage rankings. Among successful and prosperous countries, you’ll see a great deal of variation in government spending as a share of GDP: The Finns spend 57 percent, the Danes spend 55 percent, the Swedes spend 51 percent . . . but the United States spends only 38 percent, Switzerland 34 percent, Singapore 18 percent. You’ll see a fair amount of variability in business and labor regulation, too. But other factors — more difficult to quantify — tell a more universal story. In the category of “government integrity,” you’ll see to no surprise that the United States does not exactly lead the world — and that there are very few countries ranked lower than the United States in which one would want to live as an ordinary person. Italy and Costa Rica are great if you show up rich. There hasn’t been anything in the past ten years that suggests to me that government in these United States is moving in the direction of Scandinavian probity rather than tropical dysfunction.

Then there is the matter — apropos to this budget talk — of fiscal health. Canada may have an expensive national-health service, but it also has the political wherewithal and national maturity to enact taxes sufficient to pay for it, so it scores 81 out of 100 on the Heritage fiscal-health score. New Zealand also has a fairly expansive welfare state, and it scores 98 out of 100 (and 96 out of 100 on government integrity). Big-spending European welfare states such as Sweden and Denmark score in the upper 90s, too, a consequence of their scrotum-tightening tax rates.

The United States, at 55 out of 100, is tied with Angola and Burundi.

The United States also just passed a $1.5 trillion tax cut, weakening its long-term fiscal position.

The Republicans can have their high-spending/low-regulation system if they want it. Sweden has one, and the Swedes seem to be doing just fine by it. All it takes is a Swedish tax rate — just under 60 percent at the top — to make that sustainable.

If Republicans do not want to go down that road, then they’d better get serious again for the first time on spending.

READ MORE:

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