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Krugman Breathes New Life Into "Starving the Beast"

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Despite some skeptical colleagues (not mentioning any names, Alex!), I've never doubted the wisdom of "starving the beast" - opportunistically cutting taxes whenever possible in order to reduce spending eventually. Now Mankiw presents some new evidence in favor of the theory, from an unlikely source:

[A]ccording to Krugman, the Bush tax cuts may well cause government under President Obama to grow less than it otherwise would.

Roughly the same story was told in Robert Reich's highly entertaining memoir... Reich suggests that the Reagan tax cuts and resulting deficits constrained the Clinton administration from pursuing all the spending programs that Reich wanted.

Krugman and Reich view this situation as entirely negative, for they favor increased government spending. But for those classical liberals who prefer smaller government, their storyline supports the well-known and often maligned Starve the Beast theory.

Nice. Alex Tabarrok may call this "cynical" - but in politics, that's basically a synonym for "true."


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TRACKBACKS (1 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/858
The author at All Three Rings in a related article titled Paying for the beast writes:
    The “Starve the beast” theory of reducing taxes to force less government spending is making the rounds again thanks to Krugman’s column last week. Mankiw points to the column as a tacit acknowledgment by Krugman that the theory has v... [Tracked on June 23, 2008 4:42 AM]
COMMENTS (8 to date)
Matt writes:

Complaints by Krugman and Reich do not constitute proof.

Cutting taxes uner Reagan increased government share, raising them under Clinton decreased government share. The reason is simple. When you raise taxes, legislatures hear demands to reduce the budget at the same time.

Where is the evidence for the opposite affect?

What squeezes out adjusted spending amounts is the previous increase in spending, not the decrease in taxes. Reich cannot get what he wants because Bush expanded the government to do other things.

Kurbla writes:

There is no need to predict the spending of the future government from pigeon's guts - you have democracy for that.

Lord writes:

It is dubious to suggest the profligacy of earlier administrations lead to the restraint of following ones, any more so than the restraint of earlier ones lead to the profligacy of following ones. Eventually the restrained will learn it buys them nothing and they can be as profligate as the next.

Snark writes:

An October 2007 study by Christina and David Romer of the NBER found no support for the “starve the beast” hypothesis that tax cuts restrain government spending or result in smaller government. In fact, their findings suggest that “tax cuts may actually increase spending” and indicate that the primary effect of tax cuts on the government budget is to “induce subsequent legislated tax increases."

Limited government, like swailing, is useful. However, it has long since burned out of control.

spencer writes:

The problem with the starve the beast thesis is that deficits hurt the private economy, not the government. In essence it is cutting off your nose to spite your face.

aaron writes:

I think deficit spending is all about interest rates. As long as interest is low, it makes sense for us to borrow instead of raising taxes and reducing growth. Once people start expecting us to pay higher interest rates, it will be time to cut spending, raise taxes, and pay down the deficiy.

Mike writes:

Has anyone noticed that those who bashed President Reagan for what has come to be known as "starve the beast" are the same people that oppose any drilling or other policy that would increase oil supply to reduce the pain of high gas prices. As best I can tell they are deploying their own "starve the beast" strategy to force feed people into energy conservation lifestyle changes. Isn't this the green movement's own version of "starve the beast?"

8 writes:

Obama won't be able to spend because Bush already spent the money on prescription drugs and Iraq, and SS and Medicare will eat tax dollars. Even if we had a balanced budget today, higher taxes or spending cuts would be needed to fund SS and Medicare.

As for Clinton, he lost the election 56-43 but ruled as if he had won a majority. The reform/conservative voters reacted sharply and took Congress; tax cuts and welfare reform followed.

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