Based on the evidence, it appears that for nearly 50 years, Republicans have done nothing to improve the economy for anyone other than corporations and the wealthy. Reducing taxes did not restrain government spending because while Republicans were busy cutting spending, they were creating massive federal corporate welfare programs, exploding defense spending, and expanding healthcare entitlements, all based on deficit spending and none of it paid for with corresponding tax increases. Under Clinton, government spending fell, the size of government fell, and we had a large budget surplus, which means we were actually SAVING money, putting it away, not spending it. We had the largest peacetime expansion of our economy in history during Clinton's term in office, confirming that business was not straightjacketed and Congress was not restrained in any way.
By 1981 STB was well-established Republican doctrine. In his first major address on the economy as president on Feb. 5, Ronald Reagan articulated the idea perfectly. As he told a nationwide audience that night, "Over the past decades we've talked of curtailing spending so that we can then lower the tax burden. ... But there were always those who told us that taxes couldn't be cut until spending was reduced. Well, you know, we can lecture our children about extravagance until we run out of voice and breath. Or we can cure their extravagance by simply reducing their allowance."
Unfortunately there is no evidence that the big 1981 tax cut enacted by Reagan did anything whatsoever to restrain spending. Federal outlays rose from 21.7% of GDP in 1980 to 23.5% in 1983, before falling back to 21.3% of GDP by the time he left office.
Rather than view this as refutation of starve the beast theory, however, Republicans concluded that Reagan's true mistake was acquiescing to tax increases almost every year from 1982 to 1988. By the end of his presidency, Reagan signed into law tax increases that took back half the 1981 tax cut. His hand-picked successor, George H.W. Bush, compounded the error, Republicans believe, by supporting a tax increase in 1990.
When Bill Clinton became president in 1993, one of his first acts in office was to push through Congress--with no Republican support--a big tax increase. Starve the beast
theory predicted a big increase in spending as a consequence. But in fact, federal outlays fell from 22.1% of GDP in 1992 to 18.2% of GDP by the time Clinton left office.
Although all of evidence of the previous 20 years clearly refuted starve the beast theory, George W. Bush was an enthusiastic supporter, using it to justify liquidation of the budget surpluses he inherited from Clinton on massive tax cuts year after year. Bush called them "a fiscal straightjacket for Congress" that would prevent an increase in spending. Of course nothing of the kind occurred. Spending rose throughout his administration to 20.7% of GDP in 2008.
Because of the massive spending increases under Bush43, increases that were not paid for in any way, two massively expensive, illegal wars that were off-budget and politicized to ensure more spending (and more money for the defense industry), unregulated speculation in mortgages and oil that rendered collateralized securities worthless and sent oil prices through the roof, the previous administration had to inject massive amounts of capital into the economy to prop up markets that under normal circumstances would have functioned normally but were rendered powerless and bankrupt. Obama has been forced to continue the spending until the markets showed strong signs of recovery. It was a huge gamble, one that the Republicans have fought tooth and nail, mostly because they're out of power and can't take the credit if it pays off.
And it has paid off. The TARP bailout funds are being returned by banks, with interest, to the point where the government is making a profit on it, the Home Affordable Refinance Program has allowed thousands of borrowers to refinance their equity-drained homes at current market rates and reduce their monthly payments, the Federal Reserve's program to purchase mortgage-backed securities (which ended March 1) kept interest rates so low that purchase and refi business was very robust, and the auto industry bailout appears to have had the desired effect. Recent unemployment figures show that there has been positive job growth for the past four months (even after factoring out temporary census workers), and that people who had dropped off the unemployment rolls because they had stopped looking for work are now looking for work, which drove the unemployment rate up to 9.9% (just in time, as worker productivity fell for the first time in a long time last month).
Many concerns still remain, however: healthcare reform is untested, the oil mess in the Gulf of Mexico could have a serious impact on the tourism and fishing industries in the Deep South, the European economy is teetering under massive debt loads, we're still spending way too much on war, and we still have too many people unemployed. Further, Congress is peopled with ideologues and others who are more concerned with keeping their jobs than with doing their jobs. But today, I still feel the hope that carried me through 2008, which was the worst year of my life professionally.
And I am a registered Democrat.