COMMENT & ANALYSIS - Trading places - Republicans' economic policy is now closer to that associated with the Democrats, and vice versa, says Jeffrey.
Almost overnight, the administration of George W. Bush has thrown away a balanced budget that was long sought and hard fought.
Recent projections from the Congressional Budget Office now show that more than half of the accumulated 10-year budget surplus has disappeared since their March forecast. The true long-term fiscal outlook is worse, especially when the imminent retirement of the baby boom generation is taken into account.
How did the Republican party, long associated with fiscal conservatism, come to preside over so large a deviation from sound economic policy? It is the result of a long but little-noticed transformation.
Since the 1960s, the Republican and Democrat administrations have switched places on economic policy. The pattern is so well established that the generalisation can no longer be denied: the Republicans have become the party of fiscal irresponsibility, trade res-triction, big government and bad microeconomics.
Surprisingly, Democrat presidents have, relatively speaking, become the proponents of fiscal responsibility, free trade, competitive markets and neoclassical microeconomics. This characterisation sounds implausible. Certainly, it would not be recognisable from the two parties' rhetoric. But compare the records of Presidents Carter and Clinton with those of Presidents Reagan, Bush senior and Bush junior.
A simple look at the federal budget statistics shows an uncanny tendency for the deficit to rise during Republican presidencies. There is no mistaking the link between the Reagan and Bush tax cuts enacted in 1981 and 2001, respectively, and the dramatic deterioration in the long-term budget outlook that ensued. Meanwhile, by the end of the Clinton administration, the federal government achieved record surpluses.
Although many factors determine the overall budget situation, two deliberate steps enabled this achievement: Mr Clinton's 1993 budget package; and his 1998 "Save Social Security first" strategy, which blocked Congressional attempts either to cut taxes (Republicans) or raise spending (Democrats).
It is not just a question of the budget. Republicans are supposed to place more emphasis on fighting inflation. But in practice, Presidents Reagan and Bush senior pressured the Fed to ease monetary policy, while Mr Clinton deliberately and unprecedentedly let Alan Greenspan do his job.
Republican presidents have been big on free trade rhetoric. But their actions have been protectionist, judged not by some free trade ideal, but compared with Mr Clinton's record. Highlights include George W. Bush's tariffs on steel and lumber and Ronald Reagan's voluntary export restraints on autos. And the trend toward deregulation that most imagine began in the Reagan administration? It began under Jimmy Carter in airlines, trucking, natural gas and banking. Mr Reagan continued the trend.
If Republican and Democrat presidencies have indeed reversed roles, what is the explanation? After all, the Democrats in Congress, in general, are still less supportive of free trade and small government than the Republicans. One answer is that Democrats remain saddled with the image of big government. Many voters are wary of backing a Democratic presidential candidate who has not demonstrated the will and ability to grapple with the problems of government's role in the economy. The public seems willing, however, to accept Republican presidents who believe that it is enough to adopt the rhetoric of small government, even while their actions have the opposite effect.
Governing is far from easy. Intelligent economic decision-making requires painstaking work: gathering detailed information, making logical analysis of trade-offs, and confronting difficult political interest groups.
If a president assumes office thinking that good policymaking is a simple matter of declaring his desire to oppose evil-doers, favour small government and eliminate "waste, fraud and abuse", he is ill-prepared for the job's complexities.
It is not the moral failings of Washington politicians and bureaucrats that favours interventionism but the fact that we, the citizens, each want something from the government. Most farmers believe they oppose big government, but consider farm subsidies to be different. The same is true of steelworkers, energy executives and all interest groups.
Resisting the appeals of such specific interests in order to safeguard the welfare of the whole economy requires more than speeches in calling for small government. It requires more than a sincere belief in small, efficient government. It demands stamina, knowledge, ability to absorb and synthesise facts, analysis, ability to communicate, and willingness to trade off issues when constraints make it appropriate, while taking unpopular stands when required.
The writer is professor of economics at Harvard University; he was a Member of the US Council of Economic Advisers from 1997-99
US Edition 2.