Almost all economic commentators denounce the tactics of the Tea Party. In my view this reflects a lack of understanding of politics.
An example is Glenn Stevens’ implicit denunciation this week:
The immediate need is for the US authorities to lift the debt ceiling, then for them to work towards longer-term sustainability.
This might be what they should do but would they?
The core problem of government spending is that too often governments get credit for spending in the short term, without having to bear the costs of its long-term consequences. In America this effect is exacerbated because a lack of party discipline means that individuals can hold out for special deals for their areas.
Not surprisingly, they then spend too much. If congressman simply do as the Governor suggests then the problem will perpetuate.
Sure we could just increase the debt limit now and then negotiate spending cuts later but what would be the likely result of that?
Pretty clearly the politicians would be free to revert to their earmakring, rent-seeking and wild-cat spending ways. As Republican Jeff Flake from Arizona said this week on the lack of earmarks on the debt ceiling bills:
It is the most refreshing thing to see what’s going on there … This type of thing a few years ago would have cost us $20 billion. Now, a couple of pizzas and you’re there.
That’s because when the spenders need approval to keep spending the power is with those who disagree.
But if the US followed Stevens’ path the cutters will need approval to cut, and then the negotiating power will shift in the opposite direction.