For decades, the Democrats have had a lot of electoral success playing to what Americans for Tax Reform founder Grover Norquist labeled the “takings coalition,” namely a huge assortment of interest groups that want something from the federal government. (As opposed, in Norquist’s formulation, to the “leave us alone” coalition consisting of people who largely see the federal leviathan as wasteful and hostile to their interests.)
To keep the array of interest groups happy, the Democrats spent and borrowed, then spent and borrowed more. A few Republicans said that this was a path to fiscal ruin, but it was easy to ignore them and keep right on borrowing and spending, as we saw in Trump’s first term.
When Biden took over, his team went all in for federal spending, assuming that there would be no serious adverse economic consequences. That notion was rooted in what’s called Modern Monetary Theory, which posits that there’s nothing to worry about with regard to the level of government spending and borrowing since the government can always just create more dollars.
No serious economist believes in MMT. It’s like a security blanket for politicians that won’t do anything to ward off the bad effects of overspending.
In this article on The Hill, Alexander Salter and Philip Magness take aim at MMT.
They write:
Over the last four years, the federal government essentially stumbled into a modern monetary theory-style monetary crisis. The Biden-Harris administration began its term assuming it could “run the economy hot” while also avoiding inflation. They added another multi-trillion-dollar stimulus to Trump-era COVID relief spending, believing they could escape the repercussions of its price tag. Then inflation spiraled out of control.
The electoral consequence of Biden’s reckless spending was a widespread reaction against the Democrats, creating an opening for the GOP to challenge the spend-and-borrow ethos in Washington. If Trump and Company have any sense, they will lay claim to the fiscal-sobriety issue, treating it the way the Democrats treat “racism” and “the environment,” namely as a threat to the country that can’t be ignored. That has the virtue of actually being true, not just rhetoric to rope in voters.
Salter and Magness conclude:
As election day exit polling revealed, the electorate repudiated the modern monetary theory narrative. Americans are fed up with over-credentialed experts inventing new reasons to ignore basic economics. The laptop class has only itself to blame for elevating these fringe theories, thereby facilitating Trump’s electoral comeback.
Correct. Will Trump have the good sense to take advantage of this opening to slice the federal government back toward its right constitutional size?