The GOP’s Fiscal Nihilism

Martin Wolf has a must-read piece on the state of American politics on the Financial Times’ website: He calls the invention of supply-side economics “the most politically brilliant (albeit economically unconvincing) idea in the history of fiscal policy" because it allowed Republicans to promise a “free lunch”—lower taxes, lower deficits, and essentially unchanged spending. The theory was bunk—the federal-debt-to-GDP ratios ballooned under Presidents Reagan, H.W. Bush, and W. Bush—but Wolf says the adoption of supply-side economics as a party platform “transformed Republicans from a minority party into a majority party.” But now it seems the reckoning of such illogic is nigh. With Republicans indifferent to deficits so long as they’re brought on by tax cuts, “U.S. fiscal policy is paralyzed.” Wolf says some Republicans seem to want to force the U.S. government into default, which “would surely create the biggest financial crisis in world economic history,” and signal “the end of the U.S. era of global dominance.