The Agenda

Garett Jones on Why the GOP Should Make Bondholders Nervous

In a recent post at EconLog, Garett Jones of George Mason explains why he thinks Democrats are the more bondholder-friendly party:

If I’m a bondholder, I like people who cut costs and raise revenue.  Note that I’m using the word “revenue” not “taxes.”  To a Treasury bondholder, you and I are mere sources of net cash flow, not moral agents with inherent human rights. 

The GOP has demonstrated that it is firmly (if not quite implacably) opposed to revenue increases. And though congressional Republicans have embraced the Ryan budget proposals in principle, the Romney-Ryan ticket has distanced itself from its most ambitious near-term cost-cutting provisions. This trend is likely to continue, particularly if Republican-backed Medicaid reforms cause significant dislocation.

And as Ezra Klein notes, the Dems already cut $700 billion out of Medicare.  The proof of the pudding is in the brutal, voter-enraging legislation they’ve already passed. So on health care spending, we should perhaps declare D’s and R’s about tied from a bondholder’s point of view.  

If the two parties are roughly tied on their willingness to control the most important spending component, and one party is much more willing to bring me revenue, which party should I as a bondholder favor?  

Jones adds a brief coda suggesting that Speaker John Boehner’s openness to revenue increases might make congressional Republicans more attractive to bondholders. Yet this is also why some see Boehner as politically vulnerable. So all in all, I’d say Jones makes a compelling argument. One might see Republican-preferred policies as better for the country while also seeing them as more likely to create a fiscal crunch. So why am I cautiously optimistic? The larger strategic landscape is fluid, and much can change in a few weeks or months. The election will tell us much about the fiscal cliff negotiations to come. 

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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