The GOP’s most successful scam is about to reboot itself

Republicans pour on the tax cuts and spending increases to intentionally inflate the national debt

Published January 5, 2019 2:00PM (EST)


This article was produced by the Independent Media Institute.

Get ready to see it on your TV. The GOP is about to kick back into Two Santa Clauses mode and restart the scam they’ve been running since Reagan.

It’ll predictably begin in the first week or two of January, probably first on “Meet the Press” and other Sunday shows that feature “serious thinkers” and only rarely challenge Republicans. It’ll simultaneously roll out on Fox, on right-wing hate radio, and in the conservative media.

And there are more than a few “Third Way” Democrats eager to go along with it.

At its core, the strategy is simple and elegant: When Republicans are in power, run up as much debt as possible, mostly by borrowing and giving that cash to the Republican donor class through tax cuts and corporate subsidies; when Democrats have political power, Republicans suddenly become hysterical about the debt and demand that Dems keep taxes low while cutting social spending.

If successful, not only will Republicans (and corporate-funded Dems) block any genuinely progressive spending legislation in 2019 or 2020, but they’ll prevent any possibility of debt-free college, Medicare for All, or a Green New Deal in the entire next presidential term, clear through 2024 or beyond.

For this remarkably successful 38-year-long GOP head-fake strategy, you can thank a guy named Jude Wanniski.

Odds are you’ve never heard of Jude, but without him Reagan never would have become a “successful” president, Republicans only rarely would have taken control of the House or Senate, and neither George Bush would have been president.

It all began in 1964, when Barry Goldwater went down to ignominious and massive defeat. Most Republicans felt doomed, among them the then-28-year-old Wanniski. They had to come up with a new message, he knew, instead of just “drugs are bad,” “school segregation is good,” and “Democrats are communists.”

But what? The GOP seemed totally out of ideas. They floated a series of initiatives through the ’60s, mostly previewing Nixon’s “War on Drugs” and their anti-Soviet rhetoric, but nothing caught fire.

Then came 1974, as Nixon went down in flames even harder than Goldwater had, and Ford would soon follow: Jude Wanniski decided he’d had enough.

It’s the gift economy, stupid

Wanniski concluded that if the GOP was to have a new message, it would have to be all about the economy.

The problem for the GOP was that the Democrats, since FDR, had gotten to play Santa Claus when they passed out Social Security and Unemployment checks — both programs of the New Deal — as well as when their “big government” projects like roads, bridges, and highways were built, giving a healthy union paycheck to construction workers.

From the 1930s to the time Wanniski wrote his opus magnum in the Wall Street Journal, Democrats — who almost continuously controlled the House of Representatives where all taxing and spending must originate — kept high taxes on businesses and rich people to pay for things. This kept the national debt in decline, and kept working people happy (working-class wages were steadily going up, in fact faster than the wages of CEOs).

The net effect of these entirely reasonable policies was that the Democrats seem like a party of Robin Hoods, taking from the rich to fund programs for poor and working-class voters. Or, as Wanniski noted, Santa Clauses.

Americans loved it, Wanniski knew. And every time Republicans railed against these programs, calling for cuts to Social Security, blocking infrastructure or cutting aid to education, they lost elections.

So Wanniski decided to turn the classical world of economics — which had operated on Adam Smith’s simple consumer-demand-driven equation for seven thousand years — on its head.

Supply-side economics

In 1974 he invented a new phrase — “supply-side economics” — and suggested that the reason economies grew wasn’t because people had money and bought things with it but, instead, because wealthy people made things available for sale. And the way to increase “stuff,” he theorized, was to give big tax cuts to corporations and rich “investors.”

In 1976, he rolled out to the Republican Party (through the Wall Street Journal) his “Two Santa Clauses” theory, which would enable the Republicans to take power in America for the next 30-plus years.

Democrats, he said, had been able to be “Santa Clauses” by giving people things from the largesse of the federal government. Social Security, child tax credits, Medicare, Medicaid, unemployment insurance, food and housing assistance, subsidies of college education (student loans were largely unheard of in 1980), infrastructure, new schools and hospitals, airports and Amtrak — the list went on and on. And voters loved all that stuff.

Republicans, Wanniski said, had to come up with their own Santa Claus strategy, or they’d never seriously hold power again.

It was simple, really.

When Republicans are in power, they should be “tax-cut Santas.” Cut taxes radically, and thus drive up the national debt, without ever talking much about the debt (this latter part wasn’t in the article but was adopted later by the GOP).

When Democrats take power, though, everything changes. Republicans should scream so loud about the national debt that they’d intimidate Democrats into shooting their own Santa Claus by cutting all those benefits the American people so loved.

It was a twofer.

If the GOP could pull it off with sufficient discipline — and in the late ’70s and early ’80s their billionaire donors threw big money into think tanks and PR machines to make it happen and keep it going—the American people would always think of the Republicans as the tax-cut Santas, and the Democrats as the scrooges who were trying to keep “average voters” from having their share of the tax-cut toys under the tree.

Horse and sparrow economics

This new idea of “trickle-down economics” wasn’t actually new; in the late 19th century it was called “horse and sparrow economics,” on the theory that if one fed more oats to the horses, there’d be more undigested grain left over in the horse poop for the sparrows to eat. (Seriously!) But the “supply side” marketing was pure 20th-century Madison Avenue.

At the same time, Arthur Laffer was taking that equation a step further. Not only was supply-side a rational concept to build a strong economy, Laffer suggested, but as taxes went down, he drew on his napkin, revenue to the government would magically go up!

Neither concept made any sense — and time has proven both to be colossal idiocies — but together they offered the Republican Party a way out of the wilderness.

Wanniski, Laffer, Stephen Moore, and their billionaire backers convinced the Reagan campaign to embrace supply-side economics in the 1980 election, and George Herbert Walker Bush — like most Republicans of the time — was horrified. Ronald Reagan was suggesting “Voodoo Economics,” said Bush in the primary campaign, and Wanniski’s supply-side and Laffer’s tax-cut theories would throw the nation into such deep debt that we’d face disaster.

But Wanniski had been doing his homework on how to sell the scam of supply-side economics, and use it to get Republicans elected.

Two Santa Clauses wins

And it has worked.

The last two presidents to present balanced budgets to Congress (and get them passed) were Jimmy Carter and Bill Clinton. Clinton famously “ended welfare as we know it,” radically cutting back on LBJ’s Great Society programs that had nearly cut in half the U.S. poverty rate in the 1960s and ’70s.

While Obama was able to get through an initial stimulus in 2009 (Republicans were as panicked as Democrats), even his signature Affordable Care Act had to be revenue-neutral, or even cutthe deficit, to get it through Congress.

Sunday show hosts

Following their Two Santa Clauses script, the GOP was talking debt, debt, debt on nearly every Sunday show, every week, for all of Obama’s eight years.

Of course, these same commentators were silent when Republican presidents were in office, and the Sunday hosts seemed oddly amnesiac.

Reagan, Bush, Bush (and now Trump) all—every one of them—proposed and signed budgets that massively increased the national debt, year after year, relentlessly.

And during their GOP presidencies, like today (until the Dems take control of the House), the “conservative” pundits mostly kept quiet about the debt, focusing instead on feigned outrage over seemingly irrelevant things like the coming “gun confiscation,” the “War on Christmas,” inner-city violence (by black people), and the “immigration crisis” that involved brown people.

Meanwhile, out of sight of the American public, the nation’s total debt grew so high that whenever the Democrats took power, the Sunday-show Republicans started screaming about the “unsustainable debt!!!”

Like Pavlov and his dog, average people would freak out and join the Republicans in demanding that Democrats “cut all that spending!”

And with the cuts, Republicans knew, the Democrats would be shooting their own Santa Clauses.

Year after year, it worked brilliantly.

Wanniski declares victory

Looking at the wreckage of the Democratic Party all around Clinton in 1999, in particular the “Gingrich Revolution” of 1994, Wanniski wrote a gloating memo that said, in part:

“We of course should be indebted to Art Laffer for all time for his Curve... But as the primary political theoretician of the supply-side camp, I began arguing for the ‘Two Santa Claus Theory’ in 1974. If the Democrats are going to play Santa Claus by promoting more spending, the Republicans can never beat them by promoting less spending. They have to promise tax cuts...”

Ed Crane, then-president of the libertarian CATO Institute, noted in a memo that year:

“When Jack Kemp, Newt Gingrich, Vin Weber, Connie Mack and the rest discovered Jude Wanniski and Art Laffer, they thought they’d died and gone to heaven. In supply-side economics they found a philosophy that gave them a free pass out of the debate over the proper role of government. Just cut taxes and grow the economy: government will shrink as a percentage of GDP, even if you [Republicans] don’t cut spending.”

The result, in addition to several Republicans winning the presidency, is clear. Today’s national debt is almost entirely the invention of the Republican Party, using Laffer and Wanniski’s strategy.*

If you’re seeing the pattern here, it’s because it’s obvious. Republicans pour on the tax cuts and spending increases, year after year, whenever they have the power to do so, to intentionally inflate the national debt.

When a Democratic president is in office, however, or even (like 2019) when Democrats control part or all of Congress and want to go big, the Republicans in on this long con scream about the debt on every show, every day.

When Jude Wanniski died, conservative George Gilder celebrated the genius of his Two Santa Claus theory in a Wall Street Journal eulogy:

“...Jude’s charismatic focus on the tax on capital gains redeemed the fiscal policies of four administrations. ... He audaciously defied all the Buffetteers of the trade gap, the moldy figs of the Phillips Curve, the chic traders in money and principle, even the stultifying pillows of the Nobel Prize.”

And, indeed, Wanniski’s Two Santa Claus theory defied every tenet of rational economics, including those put forward by Nobel Prize winners.

In simple reality, his tax cuts for the rich did what they have always done over the past 100 years: they initiated a bubble economy that would let the very wealthy skim the cream off the top just before the ceiling crashed in on working people.

Will it work again?

The Republicans got what they wanted from Wanniski’s work. They held power for nearly 40 years, skimmed trillions of dollars out of the economy, gutted organized labor, and packed the Supreme Court and the entire federal court system.

Best of all, though, for the Two Santa Claus GOP, the years since 1981 have left such a massive national debt that some misguided “conservative” Democrats will again be clamoring to shoot Santa with cuts to education, infrastructure, health care, and other social programs.

The Two Santa Claus theory isn’t dead, and starting any day now we’ll see the Republicans crank up their debt hysteria. It’s as predictable as the seasons.

Hopefully, though, this time Democrats will point out the massive fraud perpetrated by the GOP since 1981, and begin talking about Two Santa Clauses in the media.

If they don’t, and enough “Third Way” and “New Dem” Democrats get on board with the “deficit hawks” to drag down the New Deal progressives, get ready for the second Trump term.

*For wonks who want the numbers:

The national debt, right now, at about 100 percent of GDP, is large, and servicing that debt costs us hundreds of billions of dollars a year that could find better uses.

That said, though, it’s nowhere near as high as it was after World War II, when we paid it down by raising taxes on corporations and the wealthy, and stimulating the economy with direct-benefit-to-workers programs including infrastructure, union jobs, free college education (the GI Bill), and building a social safety net. We could easily do it again.

For perspective, the national debt first began to explode in the 20th century in the first years of World War II, going from post-Great Depression 48 percent of GDP in 1942 to 70 percent of GDP in 1943.

It hit a peak of 119 percent of GDP in 1946, much higher than today, the first year after the war.

Truman and Eisenhower paid down more than half the national debt, but not by cutting spending. They left in place FDR’s 91 percent top marginal tax rate, with corporate taxes paying about a third of the total federal budget (they now pay about 9 percent).

Truman stimulated the economy with the GI Bill, sending over 7 million vets to college or journeyman training and helping them buy houses. Eisenhower got the debt down to a mere 60 percent of GDP with the stimulus of a national highway system infrastructure program (while, like Truman, keeping taxes high).

Jimmy Carter got the debt-to-GDP ratio went down to 31 percent.

When Ronald Reagan became president in 1981, the nation’s debt was a mere $908 billion. He nearly tripled it, to $2.6 trillion, all while talking about the importance of a balanced-budget amendment and the vital role of “fiscal responsibility.”

And then he rolled out supply-side Reaganomics, with the national debt hitting 50 percent in 1989 with Reagan’s last budget, and exploding up to 64 percent in 1993, the last George H.W. Bush budget year.

Clinton came into office, raised taxes on the rich, and lowered the national debt to 55 percent of GDP in 2000 and 2001.

When George W. Bush came into office, Bill Clinton handed him a budget on the edge of surplus; if Bush had done nothing we would have reduced large percentages of the national debt during Bush’s next eight years.

Instead, following Wanniski’s model, Bush put two multi-trillion-dollar illegal wars and a massive trillion-dollar tax cut for the rich on the nation’s credit card, not only massively jacking the debt but crashing the economy.

Thus, the next president — Obama — had to engage in more deficit spending (in the face of Republican refusal to raise taxes on the rich and corporations), further increasing the debt. And Republicans blocked him from raising taxes.

Trump, of course, made his own $1.5 trillion addition to the national debt, and also massively increased military spending, so that next year our nation’s debt is projected to equal 108 percent of GDP or $22.7 trillion, getting us close to post-WWII levels.

Cue the deficit hawks and concern trolls.

Thom Hartmann is a talk-show host and author of more than 25 books in print. He is a writing fellow at the Independent Media Institute.

By Thom Hartmann

Thom Hartmann is a talk-show host and the author of "The Hidden History of the Supreme Court and the Betrayal of America" and more than 25 other books in print. He is a writing fellow at the Independent Media Institute.

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