The Wave of Austerity

A year or so ago Representative Phil Gramm of Texas said that when he came to Washington one question intrigued him: Was Congress responsive primarily to interests, or to ideas? He concluded that ideas really do rule the world, or at least Congress. We saw an illustration of that last summer, when the House of Representatives voted to withhold taxes on dividend and interest income. A few years earlier the same proposal had been defeated by a margin of four hundred votes. But by 1982 a new idea was at large in the capital and spreading like a virus. Actually, it was an old idea, because these things come and go in cycles, as we shall see. Applied to economic policy, it was also very dangerous. It was the idea of retribution and penance, sackcloth and ashes, pain and suffering. Translated into policy this meant: austerity.

Traditional, centrist, and liberal Republicans could see no other solution. Nor could liberal Democrats (cunning devils). Likewise, thinkers in think tanks donned their thinking caps and in unison they thought: Oh woe! The country has been on a binge! We must pay for our sins, sober up, feel a little bit of pain and suffering (so that we know the medicine is working). We must cut spending (if possible—and it wasn’t, as the Democrats had astutely realized). We must eliminate the deficit. We must raise taxes. We must hold the money supply ever so tight. Then we shall all feel a little bit of pain and expiate the sins of the Sixties.

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Tom Bethell

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A year or so ago Representative Phil Gramm of Texas said that when he came to Washington one question intrigued him: Was Congress responsive primarily to interests, or to ideas? He concluded that ideas really do rule the world, or at least Congress. We saw an illustration of that last summer, when the House of Representatives voted to withhold taxes on dividend and interest income. A few years earlier the same proposal had been defeated by a margin of four hundred votes. But by 1982 a new idea was at large in the capital and spreading like a virus. Actually, it was an old idea, because these things come and go in cycles, as we shall see. Applied to economic policy, it was also very dangerous. It was the idea of retribution and penance, sackcloth and ashes, pain and suffering. Translated into policy this meant: austerity.

Traditional, centrist, and liberal Republicans could see no other solution. Nor could liberal Democrats (cunning devils). Likewise, thinkers in think tanks donned their thinking caps and in unison they thought: Oh woe! The country has been on a binge! We must pay for our sins, sober up, feel a little bit of pain and suffering (so that we know the medicine is working). We must cut spending (if possible—and it wasn’t, as the Democrats had astutely realized). We must eliminate the deficit. We must raise taxes. We must hold the money supply ever so tight. Then we shall all feel a little bit of pain and expiate the sins of the Sixties.