Diary

Two Santa Clauses or none?

There are some things Americans know about ourselves without having to hear it from pollsters. We know we love Santa Claus, for example. When offered a choice between having no Santa for Christmas, or having twice as much Santa, we’ll grab the latter.

That’s the gist of recent polls that showed support for the $858 billion dollar tax-cut and spending deal brokered by President Obama and lead Republicans. A random sampling of 1,011 adults by the Pew Research Center found that two-thirds of respondents favored the deal. That parallels the results of a random sampling of 1,001 adults by ABC News. According to pollsters, most Americans would rather extend the Bush tax cuts and extend jobless-benefits for the long-term unemployed rather than do neither.

That’s the choice presented by Obama and Republicans. Two Santa Clauses (with lots of earmarked presents) or none. Take it or leave it.

At the same time these polls were reported in the press, financial analysts warned the deal could prompt budget-busting debt, a fall in our nation’s credit rating, and bond market jitters.

Private sector debt fell by $165 billion in the third quarter. That is just a quarter of the rate of decline a year ago, Capital Economics notes. But what’s more, government debt issuance more than canceled out that drop, expanding by $380 billion during the period ended in September.

That gap, if you can bear it, stands to get even bigger in coming quarters should Congress approve the deficit-expanding tax deal reached this month by the White House and congressional Republicans.

That shift is not exactly reassuring the many fiscal hawks who warn that U.S. profligacy will not end well. They say the wider the budget gap, the bigger the mountain of debt sitting atop U.S. assets. Both of those trends, they claim, will push the dollar toward collapse in an inflationary crisis reminiscent of a banana republic.

If leaders are unwilling to take time to think about such consequences now, what makes us think they’ll do so after they’ve fast-tracked this deal?

The two Santa Clauses theory of government has defined America’s ruling class for 30-plus years. It was first advanced by political economist Jude Wanniski as a strategy for putting Republicans in office. The theory states that, in democratic elections, if one party courts voters by proposing more spending, a competing party can’t win by proposing less spending. Wanniski convinced Republicans to become the tax-cutting Santa Claus to the Democrats’ tax spending Santa Claus.

If he were alive today, perhaps Wannisky would say — behind closed doors — that the only problem with this deal is that Obama isn’t a Republican. Otherwise, it doesn’t seem that different from the deals struck when Republicans controlled both the legislative and executive branches of government. Cut taxes, borrow money, and spend.

Cross-posted at FireDogLake.com and Dagblog.com.