Wednesday, 24 November 2010

The coming political scene

A friend asked whether I thought the Laffer Curve, beloved of many Republicans, had any use in the real world.

It's somewhat possible that Laffer applies to corporate income taxes, but only because multinationals can choose when to repatriate income and hence wait for tax rates to change. I agree there's no evidence it ever applied domestically, even back in the 50's when the top rate was 91%.

At this point, we have the Republicans who are quite skilled at campaigning but utterly incompetent at governing, and the Democrats who are surprisingly good at governing but can't campaign their way out of a shoebox. You may not like what the recent Congress did, but the Dems delivered on their major campaign promises, including the biggest healthcare and banking laws in a generation. If they had run on their record rather than running away from it, they might well have won.

I'm kind of scratching my head about what the Reps will do now, since a War on Arithmetic is a lot easier when you're in opposition than when you're supposed to be governing. Needless to say, you can't cut taxes, balance the budget, and not cut any large programs all at the same time, but that's exactly what the WoA promises.

We'll probably see what happens when the debt limit comes up for a vote in the spring. The whole idea of a debt limit is stupid, since the debt is purely the result of the tax and spending decisions already made, and no other country has one, but of course stupid is no barrier to action these days. If the tea party types carry through with their promise to vote against it, that makes it fairly likely that the Treasury will, if not outright default on maturing T-bills and notes, pay them late since the pots of money they shuffled around to prevent that during the 1994 shutdown are apparently empty now.

Any hint of default on US debt would cause earthquakes on Wall Street, and the Tea Party's plutocratic masters won't like that. I can hardly wait.