In the process of killing the $2000 Covid survival checks, Mitch McConnell and his fellow Republicans resurrected their Party’s longest-running scam, an idea laid out by Jude Wanniski back in the 1970s to use the deficit to destroy Democrats.
The history is fascinating, and not only tells us how they’ll be re-running this long con but also what Democrats can do to expose it.
Jude Wanniski Hatches a Plan
Odds are you’ve never heard of Jude Wanniski, but without him Reagan wouldn’t have become a “successful” president, Gingrich wouldn’t have taken control of the House, Bill Clinton wouldn’t have been impeached, and neither George Bush would have been president.
A rather bookish fellow, tending toward balding with a tuft of gray hair in the center of his head in his later years, Wanniski was personally charming, although quite willing to go after his political or economic opponents when engaged in debate or in the media.
Trained as a journalist, he spoke with a slight Brooklyn accent and was often represented as an expert on economics and sometimes even introduced as an economist, although he had no academic qualifications in that field whatsoever.
Nonetheless, his “big idea” was that there are really only two types of economics in the world: “Demand Side” and “Supply Side.”
In fact, Wanniski invented the phrase “Supply Side Economics.” He even claimed that Karl Marx, Alexander Hamilton and Adam Smith were “supply-siders” who would have agreed with him.
Conservative Republicans were in a flaming crisis
When Barry Goldwater went down to ignominious defeat in 1964, most conservative Republicans felt doomed (among them the then-28-year-old Wanniski). Lyndon Johnson not only won in a landslide but was rolling out a whole new set of Great Society programs, including the brand-new proposal for Medicare, which was increasingly popular with the American electorate.
Even the most successful Republican president of the 20th century, Dwight D. Eisenhower (1953–1961), had been quite happy with FDR’s top income tax rate on millionaires of 90+ percent. He wrote a now-famous letter to his brother Edgar on November 8, 1954 saying “the Federal government cannot avoid or escape responsibilities which the mass of the people firmly believe should be undertaken by it” and that conservatives who wanted to gut FDR’s social safety net were “negligible” in numbers and “they are stupid.”
The Democrats were doing great as Santa
The main reason Democrats enjoyed so much popularity during that time was because they were giving people stuff that produced security and stability. Most tangibly, between 1933 and 1968 the Democratic Party — over loud Republican opposition — built the American social safety net.
In the 1930s, Democratic President Franklin D. Roosevelt pushed through Social Security and laid the groundwork for states to implement unemployment insurance programs, ensuring our nation’s elderly population a decent quality of life after retirement and prevent those who fell on hard times from being swept into destitution.
In the 1960s President Lyndon Johnson’s “Great Society” built on FDR’s work and created Medicare and Medicaid as well as dozens of other major programs to ensure fair housing, good public education, and reducing hunger through food stamp and other “welfare” programs. He kicked off a second wave (after Eisenhower) of building gleaming new hospitals and schools from coast to coast.
Democrats rescued America from the Republican Great Depression (they called it that until the 1940s), won World War II, and five Democratic administrations built on FDR’s New Deal to preside over the greatest economic boom in American history.
Democrats played Santa Claus passing out Social Security and Unemployment checks while funding “big government” projects like roads, bridges, and highways that gave healthy union paychecks to construction and manufacturing workers. And the Democrats did it while levying serious taxes on businesses and rich folks, as working people’s wages rapidly rose.
Democrats were firmly the party of Santa, taking from the rich to fund programs for the poor and the working class, building American infrastructure that benefited everyone, and every time Republicans railed against these programs, they lost elections.
To make things even worse, when Democrats (and Eisenhower) promoted federal deficit spending it wasn’t even driving up the federal budget deficit, because it so stimulated the economy and drove up tax revenues. America watched as these Santa Claus policies gave us the biggest middle class in the then-history of the world.
“In learning how to play both Santa Clauses,” Wanniski wrote, “the Democratic majorities in Congress grow larger and larger. They can alternate between increased spending and occasional tax cuts and take credit at the polls for both.”
Republicans must become Santas themselves!
Something had to be done, and Wanniski was begging Republicans to wake up.
“[T]he Two-Santa Claus Theory holds that the Republicans should concentrate on tax-rate reduction,” he wrote, and pretty much ignore everything else. If they focused on this, as Harding, Coolidge, and Hoover had done, it would deprive the Democrats of the ability to play Santa Clause because it would “thereby reduce social pressures for public spending” on goodies like Social Security or other safety-net programs.
Unpaid-for Republican tax cuts would make the good times roll, and people would be so happy with the Roaring Twenties-type of boom in the business cycle they wouldn’t even notice, at least over the short term, the gutting of the social safety net.
The problem, Wanniski noted, “isn’t that Republicans don’t enjoy cutting taxes. They love it.” But ever since the huge budget deficits following World War II “there is something in the Republican chemistry that causes the GOP to become hypnotized by the prospect of an imbalanced budget.”
And that’s a disaster for Republicans. “Either way,” Wanniski wrote, “they embrace the role of Scrooge, playing into the hands of the Democrats, who know the first rule of successful politics is Never Shoot Santa Claus.”
The question the power brokers in the Republican party struggled with was, “Can the Republicans play Santa Claus, too, particularly after all those years of worrying out loud about the Democrats’ big-government spending?”
Wanniski’s 1976 “Two Santa Clauses” strategy gave them a two-step answer.
Republicans could take a page out of the Democrats’ playbook and be Santa Claus too, by giving people “tax cuts” courtesy of the federal government.
But on top of that, Republicans could be double Santa Clauses by also keeping the Democratic “handout” programs like Social Security, Medicare, and unemployment insurance in place — at least until their strategy played fully out.
Then, ironically, it would be the Democrats — not the Republicans — who would be forced into the role of Scrooge and have to, themselves, cut those oh-so-popular programs. If the GOP could corner them into ending “the era of big government,” and to “end welfare as we know it,” the American people would never again trust Democrats as the true Santa Clauses.
If they could pull it off, it would be the political doom of the Democratic Party, while handing a pile of tax-cut cash to the GOP’s super-rich donor class.
Republicans once understood the Two Santa Claus strategy
The Republicans used to know how to do this, Wanniski argued in his March 6, 1976 article for The National Observer, a now defunct but then quite influential publication for Republican policy wonks. But, he said, the Party had forgotten how.
“They were not always so dumb,” Wanniski wrote of the Republicans. “The GOP’s heyday was in the 1920s, when, acting on the advice of Treasury Secretary Andrew Mellon — who served Presidents Harding, Coolidge, and Hoover — the Republicans cut tax rates no less than five times. Mellon, the embodiment of the Republican Santa Claus, argued that a cut in tax rates would provide business an incentive to expand, increase prosperity, expand the tax base, and thereby provide more revenues to the Government than would have accrued without a tax cut.”
Cut taxes, play Santa Claus, and government revenues will increase! It’s magic!!
And, Wanniski pointed out, it had worked once before for the GOP, back in the day.
“In 1921, over the screams of congressional liberals,” Wanniski wrote, “[Republican President Warren Harding] pushed through a cut in the personal income surtax in the highest brackets, to 50 per cent from the 65 per cent maximum, and an elimination of the excess-profits tax.” Harding later lowered the top rate to under 30 percent
The result was the era we call the “Roaring Twenties,” from 1921 to 1929. During that time, three successive elections produced three successive Republican Santa Claus presidents.
“Coolidge was elected in a landslide” in 1924, Wanniski noted. And things were rolling along so smoothly with the plutocrats in charge that there was almost nothing for government to do — which is how it should be.
“During those glorious years,” he wrote, “Secretary of Commerce Herbert Hoover had nothing much to do but co-ordinate disaster-relief projects, winning national acclaim for his kind heart and compassion.” That acclaim translated into Hoover becoming president in 1928, another win for Republican Santa Clauses.
But then, Wanniski noted, in 1932 Franklin D. Roosevelt figured out how to play Santa Claus on the Democratic side (leveraging the Republican Great Depression that came from Harding, Coolidge and Hoover’s application of the strategy).
“Franklin Roosevelt, the prototype of the Democratic Spending Santa Claus, was elected,” Wanniski wrote. “But instead of just boosting Federal spending, pump priming as it was called, Roosevelt boosted tax rates too. In four years he pushed the … highest marginal tax rate to 92 per cent. The Roosevelt prescription was ‘tax and tax, spend and spend, elect and elect.’ The idea, perfectly suited to a Santa Claus who prefers income redistribution to growth, was to tax money away from the well-to-do, because they were not spending it fast enough, and spend it for them.”
And it worked — the people so loved Roosevelt for being Santa Claus that they elected him to the presidency an unprecedented four times (something Republicans then amended the Constitution to prevent from ever happening again).
Taxes stayed high on rich people, the economy and wages continuously grew, and that opened the door for JFK to remind America, once again, that the real Santa Claus was Democratic with his proposal for a single-payer healthcare system. Lyndon Johnson upped the ante with his Great Society programs that cut poverty in America almost in half in less than a decade.
It was a disaster for Republicans, Wanniski pointed out, that Democrats had learned how to play the Santa Claus game, while Republicans had completely forgotten it and instead returned to their roots as fiscal conservatives.
“The Democrats realized that the Republicans would never call for a tax cut unless the Federal budget were in surplus, so they engineered their spending programs in a way that would guarantee spending would always outrun revenues. … Throughout the period, Republicans continued to play Scrooge, carping against increased spending without ever offering the obvious alternative to tax reduction.”
And every time Republicans railed against the Democrats’ programs, they lost elections.
At the same time, Arthur Laffer was taking that equation a step further. Not only was Wanniski’s supply-side a rational concept, Laffer suggested, but as taxes went down, revenue to the government would go up!
Neither concept made any sense — and time has proven both to be colossal idiocies — but together they offered the Republican Party a way out of the wilderness.
Reagan embraces Wanniski’s GOP Santa Claus
In the 1980 Republican presidential primary Ronald Reagan became the first GOP politician since 1928 to suggest that cutting taxes on rich people and businesses would give them surplus money to build factories and grow the economy. The “job creator” myth was born out of Wanniski’s work.
Reagan, Greenspan, Winniski, and Laffer took the federal budget deficit from around $800 billion in 1980 to almost three trillion dollars by 1988. Reagan ran up more debt in eight years than every president in history, from George Washington to Jimmy Carter, combined. Surely, they reasoned, this would force Democrats to make the politically suicidal move of becoming deficit hawks.
Democrats decide to shoot Santa
And that’s just how it turned out.
Bill Clinton, who had run on an FDR-like platform of a “new covenant” with the American people that would strengthen the institutions of the New Deal, strengthen labor, and institute a national health care system, found himself in a box. Clinton shot Santa, raising taxes, balancing the budget, and cutting numerous programs, declaring an “end to welfare as we know it” and, in his second inaugural address, an “end to the era of big government.”
The result was an explosion of Republican wins across the country and Clinton’s impeachment, while Republicans doubled down on a platform of supply-side tax cuts and pork-rich spending increases.
Looking at the wreckage of the Democratic Party all around Clinton by 1999, Winniski wrote a gloating memo that said, in part: “We of course should be indebted to Art Laffer for all time for his Curve… But as the primary political theoretician of the supply-side camp, I began arguing for the ‘Two Santa Claus Theory’ in 1974. If the Democrats are going to play Santa Claus by promoting more spending, the Republicans can never beat them by promoting less spending. They have to promise tax cuts…”
Ed Crane, president of the Libertarian Koch-funded CATO Institute, noted in a 1999 memo: “When Jack Kemp, Newt Gingich, Vin Weber, Connie Mack and the rest discovered Jude Wanniski and Art Laffer, they thought they’d died and gone to heaven. In supply-side economics they found a philosophy that gave them a free pass out of the debate over the proper role of government. Just cut taxes and grow the economy: government will shrink as a percentage of GDP, even if you don’t cut spending. That’s why you rarely, if ever, heard Kemp or Gingrich call for spending cuts, much less the elimination of programs and departments.”
When Wanniski died 2005, George Gilder celebrated his Two Santa Claus strategy with a Wall Street Journal eulogy:
“…Jude’s charismatic focus on the tax on capital gains redeemed the fiscal policies of four administrations. … [T]he capital-gains tax has come erratically but inexorably down — while the market capitalization of U.S. equities has risen from roughly a third of global market cap to close to half. … Unbound by zero-sum economics, Jude forged the golden gift…”
In reality, GOP tax cuts did what they’ve always done over the past 100 years: initiate a bubble economy that let the very rich skim the cream off the top as the floor fell out (and continues to fall out) under working class people.
During the Reagan era Republicans learned the strategy boiled down to a simple formula: “When a Republican is in the White House, radically cut taxes on the rich and spend like drunken sailors, producing trillions in debt and lots of stimulus-driven good times that help other Republicans get elected. When a Democrat comes into the White House, scream about the debt and refuse to do anything at all until that Democrat shoots Santa by gutting welfare programs and raising taxes.”
Reagan and Bush ran up trillions in debt which, in 1993, they used in the media to force Bill Clinton to abandon the “New Covenant” he’d campaigned on; instead he shrank the rate of government growth and slashed welfare programs to the bone, producing the first balanced budget since Jimmy Carter.
When George W. Bush came into office, Republicans stopped sputtering about the deficit and watched, happily, as he ran our national debt from just over $4 trillion up to nearly $10 trillion and handed out a trillion-dollar unfunded “free” pharmaceutical program for seniors on Medicare, along with massive tax cuts for the rich and two multi-trillion-dollar unfunded wars. Bush even out-spent and out-borrowed Reagan, which nobody had ever thought would again be possible.
The moment Barack Obama came into office, Republicans shifted gears and began screaming about the national debt and how, “like families,” the federal government had to “start living within its means.” National media, not in on the game, went along and pressured Obama to hold down both taxes and spending.
Trump then arrived and suddenly the GOP went silent on the national debt, pushing through over $2 trillion in tax cuts for the uber-rich, trillions in subsidies for giant corporations and massive increases in military spending — all with nary a peep about the debt or the deficit.
Like Lucy with the football, Mitch McConnell and Republicans in the House, Senate and the media are all now rediscovering the importance of the national debt.
The question this time is whether Democrats and the national media will fall for it again and push Joe Biden to shoot Santa Claus.